<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 15, 2000
REGISTRATION NO. 333-48042
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2 TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
IMMUNOGEN, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
MASSACHUSETTS 04-2726691
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
</TABLE>
128 SIDNEY STREET
CAMBRIDGE, MASSACHUSETTS 02139
(617) 995-2500
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
MITCHEL SAYARE, PH.D.
PRESIDENT, CHIEF EXECUTIVE OFFICER AND CHAIRMAN OF THE BOARD
IMMUNOGEN, INC.
128 SIDNEY STREET
CAMBRIDGE, MA 02139
(617) 995-2500
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
WITH COPIES TO:
<TABLE>
<S> <C>
WILLIAM T. WHELAN, ESQ. MARK KESSEL, ESQ.
Mintz, Levin, Cohn, Ferris, Shearman & Sterling
Glovsky and Popeo, P.C. 599 Lexington Avenue
One Financial Center New York, NY 10022-6069
Boston, MA 02111 (212) 848-4000
(617) 542-6000
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICAL AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
--------------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 other than securities offered only in connection with dividend or interest
reinvestment, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL SECURITIES, AND WE ARE NOT SOLICITING OFFERS TO BUY THESE SECURITIES IN
ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
SUBJECT TO COMPLETION, DATED NOVEMBER 15, 2000
PROSPECTUS
4,000,000 Shares
[LOGO]
Common Stock
We are offering 4,000,000 shares of our common stock. Our common stock
trades on the Nasdaq National Market under the symbol "IMGN." On October 25,
2000, the closing sale price of our common stock as quoted on the Nasdaq
National Market was $38.50.
Our business involves significant risks. These risks are described under
"Risk Factors" beginning on Page 5.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities, or determined if
this prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
---------------------
<TABLE>
<S> <C> <C>
Per Share Total
Public offering price....................................... $ $
Underwriting discounts and commissions...................... $ $
Proceeds, before expenses, to ImmunoGen..................... $ $
</TABLE>
The underwriters may also purchase up to an additional 600,000 shares of
common stock at the public offering price, less the underwriting discounts and
commissions, to cover over-allotments.
The underwriters expect to deliver the shares against payment in New York,
New York on , 2000.
---------------------
SG COWEN
ROBERTSON STEPHENS
ADAMS, HARKNESS & HILL, INC.
, 2000
<PAGE>
DESCRIPTION OF INSIDE FRONT COVER ART WORK FOR EDGAR PURPOSES.
A graphic depiction of an antibody with four effector molecules and the text
"four effector molecules per antibody."
A graphic depiction of antibodies with drugs attached to them targeting tumor
cells with the text "antibodies target surface markers."
A graphic depiction of antibodies with drugs attached to them binding to tumor
cells with the text "antibodies bind to surface markers."
A graphic depiction of antibodies entering tumor cells and releasing drugs with
the text "antibodies enter cell & release effector molecules."
------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT. WE
ARE OFFERING TO SELL AND SEEKING OFFERS TO BUY, SHARES OF OUR COMMON STOCK ONLY
IN JURISDICTIONS WHERE OFFERS AND SALES ARE PERMITTED. THE INFORMATION CONTAINED
IN THIS PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF THIS PROSPECTUS,
REGARDLESS OF THE TIME OF DELIVERY OF THIS PROSPECTUS OR OF ANY SALE OF OUR
COMMON STOCK. IN THIS PROSPECTUS, "IMMUNOGEN," "WE," "US" AND "OUR" REFER TO
IMMUNOGEN, INC. AND OUR SUBSIDIARIES (UNLESS THE CONTEXT OTHERWISE REQUIRES).
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Prospectus Summary.................... 1
Risk Factors.......................... 5
Forward-Looking Statements............ 16
Use of Proceeds....................... 17
Dividend Policy....................... 17
Capitalization........................ 18
Dilution.............................. 19
Selected Consolidated Financial
Data................................ 20
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 21
Business.............................. 26
</TABLE>
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Management............................ 38
Principal Stockholders................ 40
Description of Capital Stock.......... 42
Underwriting.......................... 44
Legal Matters......................... 46
Experts............................... 46
Incorporation of Certain Information
by Reference........................ 46
Where You Can Find Additional
Information......................... 47
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
i
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING IS ONLY A SUMMARY. YOU SHOULD CAREFULLY READ THE MORE DETAILED
INFORMATION CONTAINED IN THIS PROSPECTUS, INCLUDING OUR CONSOLIDATED FINANCIAL
STATEMENTS AND RELATED NOTES, AND ADDITIONAL INFORMATION INCORPORATED INTO THIS
PROSPECTUS BY REFERENCE. OUR BUSINESS INVOLVES SIGNIFICANT RISKS. YOU SHOULD
CAREFULLY CONSIDER THE INFORMATION UNDER THE HEADING "RISK FACTORS" BEGINNING ON
PAGE 5. UNLESS OTHERWISE MENTIONED, ALL INFORMATION IN THIS PROSPECTUS ASSUMES
THE UNDERWRITERS DO NOT EXERCISE THEIR OVER-ALLOTMENT OPTION.
IMMUNOGEN, INC.
We are a leading developer of antibody-based cancer therapeutics. We intend
to capitalize on the growing use of antibodies to treat cancer by using them to
deliver highly potent cell-killing, or cytotoxic, agents directly to tumor cells
with minimal harm to healthy tissue. We leverage our technology through
collaborations such as those we have entered into with SmithKline Beecham plc,
Genentech, Inc., Abgenix, Inc. and British Biotech plc.
Our lead product candidate, huC242-DM1/SB-408075, is in two Phase I/II human
clinical trials for the treatment of colorectal, pancreatic and certain
non-small-cell lung cancers. In published preclinical studies, an unhumanized
version of this drug completely eliminated transplanted human colorectal tumors
in mice with no detectable toxicity. Our second product candidate, huN901-DM1,
is a treatment for small-cell lung cancer. huN901-DM1 is currently in
preclinical development and we expect it to enter clinical trials in the first
quarter of 2001. In published preclinical studies, huN901-DM1 completely
eliminated human small-cell lung cancer tumors in mice with no detectable
toxicity.
We call our product candidates tumor-activated prodrugs, or TAPs. Each of
our TAPs consists of an antibody chemically linked, or conjugated, to a small
molecule drug, known as an effector molecule. The antibodies we use target and
bind to antigens primarily expressed on certain types of cancer cells. Once
bound to the cell surface, the cell internalizes our TAP, triggering the release
of the effector molecules which then kill the cell. We design our effector
molecules to be significantly more potent than traditional chemotherapeutics and
to remain chemically inactive and non-toxic until inside the cell.
Cancer is a leading cause of death worldwide and the second leading cause of
death in the United States with approximately 1.2 million new cases and over
550,000 deaths expected this year. Existing cancer therapies, including surgery,
radiation therapy and chemotherapy often prove to be incomplete, ineffective or
toxic to the patient. We have developed our TAP technology to address this unmet
therapeutic need.
We believe our TAP product candidates will offer advantages over other
cancer treatments because we design them to have all of the following
attributes:
- HIGH SPECIFICITY. We develop our TAPs with antibodies that bind to
specific markers primarily expressed on certain types of cancer cells to
pinpoint treatment to the targeted cell or tumor.
- HIGH POTENCY. We use highly potent small molecule effector drugs which are
at least 100 to 1000 times more cytotoxic than traditional
chemotherapeutics.
- STABLE LINKAGE AND RELEASE. We design our TAPs with a highly stable link
between the antibody and the effector molecule, allowing the potency of
the effector molecule to be released only after the TAP is inside the
cell.
- MINIMAL TOXICITY. We expect our TAPs will offer the potential for an
improved quality of life for patients due to reduced toxicity and more
tolerable side effects.
- NON-IMMUNOGENIC. We use fully-humanized antibodies and non-protein-based
small molecule effector drugs in our TAP products. This reduces the risk
that our TAPs will elicit an attack by
1
<PAGE>
the body's immune system, which could render them ineffective before they
reach the cancerous cells.
Our goal is to be the leader in the development of antibody-based cancer
treatments. To achieve our objective, we intend to implement the following
strategies:
- expand our product pipeline;
- license our technology;
- retain significant product rights; and
- broaden our technology base.
We organized as a Massachusetts corporation in March 1981. Our principal
executive offices are located at 128 Sidney Street, Cambridge, Massachusetts
02139, and our telephone number is (617) 995-2500. We maintain a web site at
http://www.immunogen.com. We do not intend for the information on our web site
to be incorporated by reference into this prospectus.
2
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock we are offering............................... 4,000,000 shares
Common stock to be outstanding after this offering......... 38,358,076 shares
Use of proceeds............................................ We intend to use the net proceeds from
this offering for working capital and
general corporate purposes, including
research and development.
Nasdaq National Market Symbol.............................. IMGN
</TABLE>
The number of shares of our common stock to be outstanding after this
offering is based on 34,358,076 shares of common stock outstanding as of
September 30, 2000. It does not include:
- 2,962,196 shares of our common stock reserved for issuance upon the
exercise of stock options outstanding as of September 30, 2000 at a
weighted average exercise price of $3.48 per share, of which options to
purchase 1,806,072 shares were then exercisable;
- 2,654,732 shares of our common stock reserved for issuance upon the
exercise of warrants outstanding as of September 30, 2000 at a weighted
average exercise price of $4.41 per share; and
- shares of our common stock reserved for issuance upon the exercise of
other warrants in an aggregate amount equal to the quotient obtained by
dividing a total of $11.1 million by the average closing sale price of our
common stock on the Nasdaq National Market for the five consecutive
trading days preceding the date of exercise, at an exercise price equal to
such average closing sale price.
3
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following summary consolidated financial data is derived and qualified
in its entirety by our consolidated financial statements and related notes. The
information under "As Adjusted" in the consolidated balance sheet data below
reflects the receipt of the estimated net proceeds from the sale by us of the
4,000,000 shares of common stock in this offering at an assumed public offering
price of $38.50 per share, after deducting the estimated underwriting discounts
and offering expenses.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
------------------------------ -------------------
1998 1999 2000 1999 2000
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues.................................... $ 307 $ 3,401 $ 11,181 $ 4,005 $ 1,759
Operating expenses:
Research and development........................ 5,745 6,098 8,878 1,831 3,569
Purchase of in-process research and development
technology.................................... 872 -- -- -- --
General and administrative...................... 1,740 1,786 3,063 508 854
Total operating expenses...................... 8,357 7,884 11,942 2,339 4,423
Net earnings/(loss) from operations............... (8,050) (4,482) (761) 1,666 (2,664)
Other income, net................................. 279 306 448 59 231
Net earnings/(loss)............................... (7,611) (4,075) (238) 1,750 (2,433)
Net earnings/(loss) applicable to common
stockholders.................................... (8,216) (4,993) (238) 1,750 (2,433)
Earnings/(loss) per common share:
Basic........................................... $ (0.34) $ (0.20) $ (0.01) $ 0.07 $ (0.07)
Diluted......................................... $ (0.34) $ (0.20) $ (0.01) $ 0.05 $ (0.07)
Average common shares outstanding:
Basic........................................... 24,210 25,525 29,521 25,914 33,307
Diluted......................................... 24,210 25,525 29,521 33,684 33,307
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000
----------------------
ACTUAL AS ADJUSTED
-------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities.................................. $30,571 $176,591
Working capital................................................................... 31,843 177,863
Total assets...................................................................... 37,876 183,896
Total stockholders' equity........................................................ 29,777 175,797
</TABLE>
4
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW BEFORE MAKING AN
INVESTMENT DECISION. YOU SHOULD ALSO REFER TO THE OTHER INFORMATION IN THIS
PROSPECTUS, INCLUDING OUR CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES,
AND ADDITIONAL INFORMATION INCORPORATED IN THIS PROSPECTUS BY REFERENCE. THE
RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE THOSE THAT WE CURRENTLY BELIEVE MAY
MATERIALLY AFFECT OUR COMPANY. ADDITIONAL RISKS AND UNCERTAINTIES THAT WE ARE
UNAWARE OF OR THAT WE CURRENTLY DEEM IMMATERIAL ALSO MAY BECOME IMPORTANT
FACTORS THAT AFFECT OUR COMPANY.
RISKS RELATING TO OUR COMPANY AND BUSINESS
IF OUR TAP TECHNOLOGY DOES NOT PRODUCE SAFE, EFFECTIVE AND COMMERCIALLY VIABLE
PRODUCTS, OUR BUSINESS WILL BE SEVERELY HARMED.
Our TAP technology is a novel approach to the treatment of cancer. None of
our TAP product candidates has obtained regulatory approval and all of them are
in early stages of development. Our TAP product candidates may not prove to be
safe, effective or commercially viable treatments for cancer and our TAP
technology may not result in any meaningful benefits to our current or potential
collaborative partners. Furthermore, we are aware of only one chemotherapeutic
product that has obtained FDA approval and is based on technology similar to our
TAP technology. If our TAP technology fails to generate product candidates that
are safe, effective and commercially viable treatments for cancer, and obtain
FDA approval, our business will be severely harmed.
CLINICAL TRIALS FOR OUR PRODUCT CANDIDATES WILL BE LENGTHY AND EXPENSIVE AND
THEIR OUTCOME IS UNCERTAIN.
Before obtaining regulatory approval for the commercial sale of any product
candidates, we and our collaborative partners must demonstrate through
preclinical testing and clinical trials that our product candidates are safe and
effective for use in humans. Conducting clinical trials is a time consuming and
expensive process and may take years to complete. Our most advanced product
candidate, huC242-DM1/SB-408075, is only in the Phase I/II stage of clinical
trials and our second most advanced product, huN901-DM1, is in preclinical
testing.
Historically, the results from preclinical testing and early clinical trials
have often not been predictive of results obtained in later clinical trials.
Frequently, drugs that have shown promising results in preclinical or early
clinical trials subsequently fail to establish sufficient data of safety and
effectiveness necessary to obtain regulatory approval. At any time during the
clinical trials, we, our collaborative partners or the FDA might delay or halt
any clinical trials for our product candidates for various reasons, including:
- ineffectiveness of the product candidate;
- discovery of unacceptable toxicities or side effects;
- development of disease resistance or other physiological factors; or
- delays in patient enrollment.
The results of the clinical trials may fail to demonstrate the safety or
effectiveness of our product candidates to the extent necessary to obtain
regulatory approval or that commercialization of our product candidates is
worthwhile. Any failure or substantial delay in successfully completing clinical
trials and obtaining regulatory approval for our product candidates could
severely harm our business.
5
<PAGE>
IF OUR COLLABORATIVE PARTNERS FAIL TO PERFORM THEIR OBLIGATIONS UNDER OUR
AGREEMENTS, OUR ABILITY TO DEVELOP AND MARKET POTENTIAL PRODUCTS COULD BE
SEVERELY LIMITED.
Our strategy for the development and commercialization of our product
candidates depends, in large part, upon the formation of collaborative
arrangements. Collaborations allow us to:
- fund our internal research and development, preclinical testing, clinical
trials and manufacturing;
- seek and obtain regulatory approvals;
- successfully commercialize existing and future product candidates; and
- develop antibodies for additional product candidates, and discover
additional cell surface markers for antibody development.
If we fail to secure or maintain successful collaborative arrangements, our
development and marketing activities may be delayed or reduced. We may also be
unable to negotiate additional collaborative arrangements or, if necessary,
modify our existing arrangements on acceptable terms.
We have entered into collaboration agreements with SmithKline Beecham and
British Biotech with respect to our two most advanced product candidates,
huC242-DM1/SB-408075 and huN901-DM1, respectively. The development, regulatory
approval and commercialization of these two product candidates depend primarily
on the efforts of these collaborative partners. We cannot control the amount and
timing of resources our partners may devote to our products. Our partners may
separately pursue competing products, therapeutic approaches or technologies to
develop treatments for the diseases targeted by us or our collaborative efforts.
Even if our partners continue their contributions to the collaborative
arrangements, they may nevertheless determine not to actively pursue the
development or commercialization of any resulting products. Also, our partners
may fail to perform their obligations under the collaboration agreements or may
be slow in performing their obligations. Our partners can terminate our
collaborative agreements under certain conditions. If any collaborative partner
were to terminate or breach our agreement, or otherwise fail to complete its
obligations in a timely manner, our anticipated revenue from the agreement and
development and commercialization of our products could be severely limited. If
we are not able to establish additional collaborations or any or all of our
existing collaborations are terminated and we are not able to enter into
alternative collaborations on acceptable terms, we may be required to undertake
product development, manufacture and commercialization and we may not have the
funds or capability to do this.
WE DEPEND ON A SMALL NUMBER OF COLLABORATORS FOR A SUBSTANTIAL PORTION OF OUR
REVENUE. THE LOSS OF ANY ONE OF THESE COLLABORATORS COULD RESULT IN A
SUBSTANTIAL DECLINE IN REVENUE.
We have and will continue to have collaborations with a limited number of
companies. As a result, our financial performance depends on the efforts and
overall success of these companies. The failure of any one of our collaboration
partners to perform its obligations under its agreement with us, including
making any royalty, milestone or other payments to us, could have a material
adverse effect on our financial condition. Also, if consolidation trends in the
healthcare industry continue, the number of our potential collaborators could
decrease, which could have an adverse impact on our development efforts.
WE HAVE A HISTORY OF OPERATING LOSSES AND EXPECT TO INCUR SIGNIFICANT ADDITIONAL
OPERATING LOSSES.
We have generated operating losses since our inception. As of September 30,
2000, we had an accumulated deficit of $156.4 million. We may never be
profitable. We expect to incur substantial additional operating expenses over
the next several years as our research, development, preclinical testing and
clinical trial activities increase. We intend to invest significantly in our
products and bring more of the product development process in-house prior to
entering into collaborative arrangements. We may also incur substantial
marketing and other costs in the future if we decide to establish
6
<PAGE>
marketing and sales capabilities to commercialize certain of our products. None
of our product candidates has generated any commercial revenue and our only
revenues to date have been primarily from up-front and milestone payments from
our collaboration partners. We do not expect to generate revenues from the
commercial sale of our products in the foreseeable future, and we may never
generate revenues from the sale of products. Even if we do successfully develop
products that can be marketed and sold commercially, we will need to generate
significant revenues from those products to achieve and maintain profitability.
Even if we do become profitable, we may not be able to sustain or increase
profitability on a quarterly or annual basis.
WE ARE SUBJECT TO EXTENSIVE GOVERNMENT REGULATIONS AND WE MAY NOT BE ABLE TO
OBTAIN REGULATORY APPROVALS.
We or our collaborative partners may not receive the regulatory approvals
necessary to commercialize our product candidates, which could cause our
business to fail. Our product candidates are subject to extensive and rigorous
government regulation. The FDA regulates, among other things, the development,
testing, manufacture, safety, record-keeping, labeling, storage, approval,
advertising, promotion, sale and distribution of pharmaceutical products. If our
potential products are marketed abroad, they will also be subject to extensive
regulation by foreign governments. None of our product candidates has been
approved for sale in the United States or any foreign market.
The regulatory review and approval process, which includes preclinical
studies and clinical trials of each product candidate, is lengthy, expensive and
uncertain. Securing FDA approval requires the submission of extensive
preclinical and clinical data and supporting information to the FDA for each
indication to establish the product candidates' safety and efficacy. Data
obtained from preclinical and clinical trials are susceptible to varying
interpretation, which may delay, limit or prevent regulatory approval. The
approval process may take many years to complete and may involve ongoing
requirements for post-marketing studies. In light of the limited regulatory
history of monoclonal antibody-based therapeutics, we cannot assure you that
regulatory approvals for our products will be obtained without lengthy delays,
if at all. Any FDA or other regulatory approvals of our product candidates, once
obtained, may be withdrawn. The effect of government regulation may be to:
- delay marketing of potential products for a considerable period of time;
- limit the indicated uses for which potential products may be marketed;
- impose costly requirements on our activities; and
- provide competitive advantage to other pharmaceutical and biotechnology
companies.
We may encounter delays or rejections in the regulatory approval process
because of additional government regulation from future legislation or
administrative action or changes in FDA policy during the period of product
development, clinical trials and FDA regulatory review. Failure to comply with
applicable FDA or other applicable regulatory requirements may result in
criminal prosecution, civil penalties, recall or seizure of products, total or
partial suspension of production or injunction, as well as other regulatory
action against our product candidates or us.
Outside the United States, our ability to market a product is contingent
upon receiving clearances from the appropriate regulatory authorities. This
foreign regulatory approval process includes all of the risks associated with
the FDA approval process.
In addition, we are, or may become, subject to various federal, state and
local laws, regulations and recommendations relating to safe working conditions,
laboratory and manufacturing practices, the experimental use of animals and the
use and disposal of hazardous substances, including radioactive compounds and
infectious disease agents, used in connection with our research work. If we fail
to comply with the laws and regulations pertaining to our business, we may be
subject to sanctions,
7
<PAGE>
including the temporary or permanent suspension of operations, product recalls,
marketing restrictions and civil and criminal penalties.
WE MAY BE UNABLE TO ESTABLISH THE MANUFACTURING CAPABILITIES NECESSARY TO
DEVELOP AND COMMERCIALIZE OUR POTENTIAL PRODUCTS.
Currently, we only have one pilot manufacturing facility for the manufacture
of products necessary for clinical testing. We do not have sufficient
manufacturing capacity to manufacture our product candidates in quantities
necessary for commercial sale. In addition, our manufacturing capacity may be
inadequate to complete all clinical trials contemplated by us over time. We
intend to rely in part on third-party contract manufacturers to produce large
quantities of drug materials needed for clinical trials and commercialization of
our potential products. Third-party manufacturers may not be able to meet our
needs with respect to timing, quantity or quality of materials. If we are unable
to contract for a sufficient supply of needed materials on acceptable terms, or
if we should encounter delays or difficulties in our relationships with
manufacturers, our clinical trials may be delayed, thereby delaying the
submission of product candidates for regulatory approval and the market
introduction and subsequent commercialization of our potential products. Any
such delays may lower our revenues and potential profitability.
We may develop our manufacturing capacity in part by expanding our current
facilities or building new facilities. Either of these activities would require
substantial additional funds and we would need to hire and train significant
numbers of employees to staff these facilities. We may not be able to develop
manufacturing facilities that are sufficient to produce drug materials for
clinical trials or commercial use. We and any third-party manufacturers that we
may use must continually adhere to current Good Manufacturing Practices
regulations enforced by the FDA through its facilities inspection program. If
our facilities or the facilities of third-party manufacturers cannot pass a
pre-approval plant inspection, the FDA approval of our product candidates will
not be granted. In complying with these regulations and foreign regulatory
requirements, we and any of our third-party manufacturers will be obligated to
expend time, money and effort on production, record-keeping and quality control
to assure that our potential products meet applicable specifications and other
requirements. If we or any third-party manufacturer with whom we may contract
fail to maintain regulatory compliance, we or the third party may be subject to
fines and manufacturing operations may be suspended.
WE RELY ON ONE SUPPLIER FOR THE PRIMARY COMPONENT TO MANUFACTURE OUR SMALL
MOLECULE EFFECTOR DRUG, DM1. ANY PROBLEMS EXPERIENCED BY SUCH SUPPLIER COULD
NEGATIVELY AFFECT OUR OPERATIONS.
We rely on third-party suppliers for some of the materials used in the
manufacturing of our TAP product candidates and small molecule effector drugs.
Our most advanced small molecule effector drug is DM1. DM1 is the cytotoxic
agent used in all of our current TAP product candidates and the subject of most
of our collaborations. One of the primary components required to manufacture DM1
is its precursor, ansamitocin P3. Currently, only one vendor manufactures and is
able to supply us with this material. Any problems experienced by this vendor
could result in a delay or interruption in the supply of ansamitocin P3 to us
until this vendor cures the problem or until we locate an alternative source of
supply. Any delay or interruption in our supply of ansamitocin P3 would likely
lead to a delay or interruption in our manufacturing operations and preclinical
and clinical trials of our product candidates, which could negatively affect our
business.
WE MAY BE UNABLE TO ESTABLISH SALES AND MARKETING CAPABILITIES NECESSARY TO
SUCCESSFULLY COMMERCIALIZE OUR POTENTIAL PRODUCTS.
We currently have no direct sales or marketing capabilities. We anticipate
relying on third parties to market and sell most of our primary product
candidates. If we decide to market our potential products through a direct sales
force, we would need to either hire a sales force with expertise in
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<PAGE>
pharmaceutical sales or contract with a third party to provide a sales force to
meet our needs. We may be unable to establish marketing, sales and distribution
capabilities necessary to commercialize and gain market acceptance for our
potential products and be competitive. In addition, co-promotion or other
marketing arrangements with third parties to commercialize potential products
could significantly limit the revenues we derive from these potential products,
and these third parties may fail to commercialize our potential products
successfully.
IF OUR PRODUCT CANDIDATES DO NOT GAIN MARKET ACCEPTANCE, OUR BUSINESS WILL
SUFFER.
Even if clinical trials demonstrate safety and efficacy of our product
candidates and the necessary regulatory approvals are obtained, our product
candidates may not gain market acceptance among physicians, patients, healthcare
payors and the medical community. The degree of market acceptance of any product
candidates that we develop will depend on a number of factors, including:
- the degree of clinical efficacy and safety;
- cost-effectiveness of our product candidates;
- their advantage over alternative treatment methods;
- reimbursement policies of government and third-party payors; and
- the quality of our or our collaborative partners' marketing and
distribution capabilities for our product candidates.
Physicians will not recommend therapies using any of our future products
until such time as clinical data or other factors demonstrate the safety and
efficacy of such products as compared to conventional drug and other treatments.
Even if the clinical safety and efficacy of therapies using our products is
established, physicians may elect not to recommend the therapies for any number
of other reasons, including whether the mode of administration of our products
is effective for certain indications. Our product candidates, if successfully
developed, will compete with a number of drugs and therapies manufactured and
marketed by major pharmaceutical and other biotechnology companies. Our products
may also compete with new products currently under development by others.
Physicians, patients, third-party payors and the medical community may not
accept and utilize any product candidates that we or our collaborative partners
develop. If our products do not achieve significant market acceptance, we will
not be able to recover the significant investment we have made in developing
such products and our business would be severely harmed.
WE MAY BE UNABLE TO COMPETE SUCCESSFULLY.
The markets in which we compete are well-established and intensely
competitive. We may be unable to compete successfully against our current and
future competitors. Our failure to compete successfully may result in pricing
reductions, reduced gross margins and failure to achieve market acceptance for
our potential products.
Our competitors include pharmaceutical companies, biotechnology companies,
chemical companies, academic and research institutions and government agencies.
Many of these organizations have substantially more experience and more capital,
research and development, regulatory, manufacturing, sales, marketing, human and
other resources than we do. As a result, they may:
- develop products that are safer or more effective than our product
candidates;
- obtain FDA and other regulatory approvals or reach the market with their
products more rapidly than we can, reducing the potential sales of our
product candidates;
- devote greater resources to market or sell their products;
9
<PAGE>
- adapt more quickly to new technologies and scientific advances;
- initiate or withstand substantial price competition more successfully than
we can;
- have greater success in recruiting skilled scientific workers from the
limited pool of available talent;
- more effectively negotiate third-party licensing and collaboration
arrangements; and
- take advantage of acquisition or other opportunities more readily than we
can.
A number of pharmaceutical and biotechnology companies are currently
developing products targeting the same types of cancer that we target, and some
of our competitors' products have entered clinical trials or already are
commercially available. In addition, our product candidates, if approved and
commercialized, will compete against well-established existing therapeutic
products that are currently reimbursed by government health administration
authorities, private health insurers and health maintenance organizations.
We face and will continue to face intense competition from other companies
for collaborative arrangements with pharmaceutical and biotechnology companies,
for relationships with academic and research institutions, and for licenses to
proprietary technology. In addition, we anticipate that we will face increased
competition in the future as new companies enter our markets and as scientific
developments surrounding prodrug and antibody-based therapeutics for cancer
continue to accelerate. While we will seek to expand our technological
capabilities to remain competitive, research and development by others may
render our technology or product candidates obsolete or noncompetitive or result
in treatments or cures superior to any therapy developed by us.
IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS ADEQUATELY, THE
VALUE OF OUR TAP TECHNOLOGY AND OUR PRODUCT CANDIDATES COULD BE DIMINISHED.
Our success is dependent in part on obtaining, maintaining and enforcing our
patents and other proprietary rights and our ability to avoid infringing the
proprietary rights of others. Patent law relating to the scope of claims in the
biotechnology field in which we operate is still evolving and surrounded by a
great deal of uncertainty and involves complex legal, scientific and factual
questions. To date, no consistent policy has emerged regarding the breadth of
claims allowed in biotechnology patents. Accordingly, our pending patent
applications may not result in issued patents.
Although we own several patents, the issuance of a patent is not conclusive
as to its validity or enforceability. Through litigation, a third party may
challenge the validity or enforceability of a patent after its issuance. Also,
patents and applications owned or licensed by us may become the subject of
interference proceedings in the U.S. Patent and Trademark Office to determine
priority of invention which could result in substantial cost to us. An adverse
decision in an interference proceeding may result in our loss of rights under a
patent or patent application subject to such a proceeding. We cannot assure you
how much protection, if any, will be given to our patents if we attempt to
enforce them and they are challenged in court or in other proceedings. It is
possible that a competitor may successfully challenge our patents or that a
challenge will result in limitations of their coverage. In addition, the cost of
litigation or interference proceedings to uphold the validity of patents can be
substantial. If we are unsuccessful in such proceedings, third parties may be
able to use our patented technology without paying us licensing fees or
royalties.
Moreover, competitors may infringe our patents or successfully avoid them
through design innovation. To prevent infringement or unauthorized use, we may
need to file infringement claims, which are expensive and time-consuming. In an
infringement proceeding a court may decide that a patent of ours is not valid.
Even if the validity of our patents were upheld, a court may refuse to stop the
other party from using the technology at issue on the ground that its activities
are not covered by
10
<PAGE>
our patents. Policing unauthorized use of our intellectual property is
difficult, and we may not be able to prevent misappropriation of our proprietary
rights, particularly in countries where the laws may not protect such rights as
fully as in the United States.
In addition to our patent rights, we also rely on unpatented technology,
trade secrets and confidential information. Others may independently develop
substantially equivalent information and techniques or otherwise gain access to
or disclose our technology. We may not be able to effectively protect our rights
in unpatented technology, trade secrets and confidential information. We require
each of our employees, consultants and corporate partners to execute a
confidentiality agreement at the commencement of an employment, consulting or
collaborative relationship with us. However, these agreements may not provide
effective protection of our information or, in the event of unauthorized use or
disclosure, they may not provide adequate remedies.
WE MAY BE SUBJECT TO SUBSTANTIAL COSTS AND LIABILITY OR BE PROHIBITED FROM
COMMERCIALIZING OUR POTENTIAL PRODUCTS AS A RESULT OF LITIGATION AND OTHER
PROCEEDINGS RELATING TO PATENT RIGHTS.
Patent litigation is very common in the biotechnology and pharmaceutical
industries. Third parties may assert patent or other intellectual property
infringement claims against us with respect to our technologies, products or
other matters. Any claims that might be brought against us relating to
infringement of patents may cause us to incur significant expenses and, if
successfully asserted against us, may cause us to pay substantial damages and
limit our ability to use the intellectual property subject to these claims. Even
if we were to prevail, any litigation could be costly and time-consuming and
could divert the attention of our management and key personnel from our business
operations. Furthermore, as a result of a patent infringement suit, we may be
forced to stop or delay developing, manufacturing or selling potential products
that incorporate the challenged intellectual property unless we enter into
royalty or license agreements.
Furthermore, because patent applications in the United States are maintained
in secrecy until a patent issues, others may have filed patent applications for
technology covered by our pending applications. There may be third-party
patents, patent applications and other intellectual property relevant to our
potential products that may block or compete with our products or processes. In
addition, we sometimes undertake research and development with respect to
potential products even when we are aware of third-party patents that may be
relevant to our potential products, on the basis that such patents may be
challenged or licensed by us. If our subsequent challenge to such patents were
not to prevail, we may not be able to commercialize our potential products after
having already incurred significant expenditures unless we are able to license
the intellectual property on commercially reasonable terms.
We may not be able to obtain royalty or license agreements on terms
acceptable to us, if at all. Even if we were able to obtain licenses to such
technology, some licenses may be non-exclusive, thereby giving our competitors
access to the same technologies licensed to us. Ultimately, we may be unable to
commercialize some of our potential products or may have to cease some of our
business operations, which could severely harm our business.
OUR INABILITY TO LICENSE FROM THIRD PARTIES THEIR PROPRIETARY TECHNOLOGIES OR
PROCESSES WHICH WE USE IN CONNECTION WITH THE DEVELOPMENT AND MANUFACTURE OF OUR
TAP PRODUCT CANDIDATES MAY IMPAIR OUR BUSINESS.
Other companies, universities and research institutions have or may obtain
patents that could limit our ability to use, manufacture, market or sell our
product candidates or impair our competitive position. As a result, we will have
to obtain licenses from other parties before we could continue using,
manufacturing, marketing or selling our potential products. Any such licenses
may not be available on commercially acceptable terms, if at all. If we do not
obtain required licenses, we may not be able to
11
<PAGE>
market our potential products at all or we may encounter significant delays in
product development while we redesign potentially infringing products or
methods.
WE FACE UNCERTAINTIES OVER REIMBURSEMENT AND HEALTHCARE REFORM.
In both domestic and foreign markets, future sales of our potential
products, if any, will depend in part on the availability of reimbursement from
third-party payors such as government health administration authorities, private
health insurers and other organizations. Third-party payors are increasingly
challenging the price and cost-effectiveness of medical products and services.
Significant uncertainty exists as to the reimbursement status of newly-approved
health care products. Even if they were to obtain regulatory approval, our
product candidates may not be considered cost-effective and adequate third-party
reimbursement may not be available to enable us to maintain price levels
sufficient to realize an appropriate return on our investments in product
development. Legislation and regulations affecting the pricing of
pharmaceuticals may change before any of our product candidates is approved for
marketing. Adoption of such legislation and regulations could further limit
reimbursement for medical products and services. If the government and
third-party payors fail to provide adequate coverage and reimbursement rates for
our potential products, the market acceptance of our products may be adversely
affected.
WE USE HAZARDOUS MATERIALS IN OUR BUSINESS, AND ANY CLAIMS RELATING TO IMPROPER
HANDLING, STORAGE OR DISPOSAL OF THESE MATERIALS COULD HARM OUR BUSINESS.
Our research and development activities involve the controlled use of
hazardous materials, chemicals, biological materials and radioactive compounds.
We are subject to federal, state and local laws and regulations governing the
use, manufacture, storage, handling and disposal of such materials and certain
waste products. Although we believe that our safety procedures for handling and
disposing of such materials comply with the standards prescribed by such laws
and regulations, the risk of accidental contamination or injury from these
materials cannot be completely eliminated. In the event of such an accident, we
could be held liable for any resulting damages, and any such liability could
exceed our resources. We may be required to incur significant costs to comply
with these laws in the future. Failure to comply with these laws could result in
fines and the revocation of permits, which could prevent us from conducting our
business.
WE FACE PRODUCT LIABILITY RISKS AND MAY NOT BE ABLE TO OBTAIN ADEQUATE
INSURANCE.
The use of our product candidates during testing or after approval entails
an inherent risk of adverse effects which could expose us to product liability
claims. Regardless of their merit or eventual outcome, product liability claims
may result in:
- decreased demand for our product;
- injury to our reputation and significant media attention;
- withdrawal of clinical trial volunteers;
- costs of litigation;
- distraction of management; and
- substantial monetary awards to plaintiffs.
We may not have sufficient resources to satisfy any liability resulting from
these claims. We currently have $5.0 million of product liability insurance for
products which are in clinical testing. This coverage may not be adequate in
scope to protect us in the event of a successful product liability claim.
Further, we may not be able to maintain such insurance or obtain general product
liability insurance on reasonable terms and at an acceptable cost if we or our
collaborative partners begin commercial
12
<PAGE>
production of our proposed product candidates or that such insurance will be in
sufficient amounts to provide us with adequate coverage against potential
liabilities.
WE DEPEND ON OUR KEY PERSONNEL AND WE MUST CONTINUE TO ATTRACT AND RETAIN KEY
EMPLOYEES AND CONSULTANTS.
We depend on the principal members of our scientific and management
personnel. Our ability to pursue the development of our current and future
product candidates depends largely on retaining the services of our existing
personnel and hiring additional qualified scientific personnel to perform
research and development. We will also need to hire personnel with expertise in
clinical testing, government regulation, manufacturing, marketing and finance,
including a new chief financial officer. Attracting and retaining qualified
personnel will be critical to our success. We may not be able to attract and
retain personnel on acceptable terms given the competition for such personnel
among biotechnology, pharmaceutical and healthcare companies, universities and
non-profit research institutions. Failure to retain our existing key management
and scientific personnel or to attract additional highly qualified personnel
could delay the development of our product candidates and harm our business.
IF WE ARE UNABLE TO OBTAIN ADDITIONAL FUNDING WHEN NEEDED, WE MAY HAVE TO DELAY
OR SCALE BACK SOME OF OUR PROGRAMS OR GRANT RIGHTS TO THIRD PARTIES TO DEVELOP
AND MARKET OUR PRODUCTS.
We will continue to expend substantial resources developing new and existing
product candidates, including costs associated with research and development,
acquiring new technologies, conducting preclinical and clinical trials,
obtaining regulatory approvals and manufacturing products. We believe that the
net proceeds of this offering, our current working capital and future payments,
if any, from our collaboration arrangements will be sufficient to meet our
operating and capital requirements for at least the next three years. However,
we may need additional financing sooner due to a number of factors including:
- higher costs and slower progress than expected in developing product
candidates and obtaining regulatory approvals;
- acquisition of technologies and other business opportunities that require
financial commitments; or
- lower revenues than expected under our collaboration agreements.
Additional funding may not be available to us on favorable terms, if at all.
We may raise additional funds through public or private financings,
collaborative arrangements or other arrangements. Debt financing, if available,
may involve covenants which could restrict our business activities. If we are
unable to raise additional funds through equity or debt financing when needed,
we may be required to delay, scale back or eliminate expenditures for some of
our development programs or grant rights to develop and market product
candidates that we would otherwise prefer to develop and market internally. If
we are required to grant such rights, the ultimate value of these product
candidates to us may be reduced.
FLUCTUATIONS IN OUR QUARTERLY REVENUE AND OPERATING RESULTS MAY CAUSE OUR STOCK
PRICE TO DECLINE.
Our operating results have fluctuated in the past and are likely to continue
to do so in the future. Our revenue is unpredictable and may fluctuate due to
the timing of non-recurring licensing fees, reimbursement for manufacturing
services, the achievement of milestones and our receipt of the related milestone
payments under new and existing licensing and collaboration agreements. Revenue
historically recognized under our prior collaboration agreements may not be an
indicator of revenue from any future collaborations. In addition, our expenses
are unpredictable and may fluctuate from
13
<PAGE>
quarter-to-quarter due to the timing of expenses, which may include obligations
to manufacture or supply product or payments owed by us under licensing or
collaboration agreements. It is possible that in the future, our quarterly
operating results will not meet the expectations of securities analysts or
investors, causing the market price of our common stock to decline. We believe
that quarter-to-quarter comparisons of our operating results are not a good
indicator of our future performance and should not be relied upon to predict the
future performance of our stock price.
RISKS RELATING TO THIS OFFERING
OUR STOCK PRICE IS HIGHLY VOLATILE AND AN INVESTMENT IN OUR STOCK COULD DECLINE
IN VALUE.
The market price and trading volume of shares of our common stock are
volatile, and we expect them to continue to be volatile for the foreseeable
future. For example, during the period between September 30, 1999 and
September 30, 2000, our common stock closed as high as $34.38 per share and as
low as $2.03 per share. Factors affecting our stock price include:
- announcements of technological innovations or new commercial therapeutic
products by us or our competitors;
- failure to achieve operating results projected by securities analysts;
- changes in earnings estimates or recommendations by securities analysts;
- progress or setbacks with preclinical and clinical trials;
- changes or proposed changes in government regulation of healthcare;
- developments in our industry;
- developments in patent or other proprietary rights, and litigation
concerning these rights;
- developments in our relationship with collaborative partners;
- public concern as to the safety and efficacy of our products;
- fluctuations in our revenues and operating results or those of our
competitors; and
- general market conditions.
In addition, stock prices for many companies in the technology and emerging
growth sectors have experienced wide fluctuations that have often been unrelated
to the operating performance of such companies.
AS A NEW INVESTOR, YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION.
If you purchase shares of our common stock in this offering, you will incur
immediate and substantial dilution in pro forma net tangible book value. After
giving effect to the sale of the 4,000,000 shares of common stock we are
offering at an assumed public offering price of $38.50 per share and after
deducting estimated underwriting discounts and commissions and offering
expenses, our pro forma as adjusted net tangible book value at September 30,
2000, would have been $176 million, or $4.58 per share. This represents an
immediate increase in the pro forma as adjusted net tangible book value of $3.71
per share to existing stockholders and an immediate and substantial dilution of
$33.92 per share to new investors, or approximately 88.1% of the assumed
offering price of $38.50 per share. If the holders of outstanding options or
warrants exercise those options or warrants, you will incur further dilution.
14
<PAGE>
WE DO NOT INTEND TO PAY CASH DIVIDENDS ON OUR COMMON STOCK.
We have not paid cash dividends since our inception and do not intend to pay
cash dividends in the foreseeable future. Therefore, you will have to rely on
appreciation in our stock price in order to achieve a gain on your investment.
FUTURE ISSUANCES AND SALES OF SHARES OF OUR COMMON STOCK UPON THE EXERCISE OF
OUTSTANDING WARRANTS AND OPTIONS MAY ADVERSELY AFFECT THE MARKET PRICE OF OUR
COMMON STOCK OR IMPAIR OUR ABILITY TO RAISE CAPITAL.
As of September 30, 2000, there were warrants outstanding to purchase an
aggregate of 2,654,732 shares of our common stock and options outstanding to
purchase an aggregate of 2,962,196 shares of our common stock. There were also
other warrants to purchase an amount of shares equal to $11.1 million divided by
the average of the closing sale price per share of our common stock on the
Nasdaq National Market for the five consecutive trading days preceding the
exercise date. As of September 30, 2000, options to purchase 1,806,072 shares
were then exercisable and all of the warrants were exercisable. Almost all of
the shares to be issued upon the exercise of these options and warrants may be
sold freely in the public market because they either have been registered under
currently effective registration statements or may be sold in compliance with
Rule 144 under the Securities Act. In other cases, we have granted certain
demand and piggy back registration rights which are currently available. An
increase in the number of shares of our common stock that will become available
for the sale in the public market may adversely affect the market price of our
common stock. This, in turn, could impair our ability to raise additional
capital through the sale of equity securities.
15
<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus, including the sections entitled "Prospectus Summary," "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business", contains forward-looking statements
within the meaning of Section 27A of the Securities Act and Section 21E of the
Securities Exchange Act of 1934. These statements relate to future events of our
future financial and operating performance and involve known and unknown risks,
uncertainties and other factors that may cause our or our industry's actual
results, levels of activity, performance or achievements to be materially
different from that expressed or implied by these forward-looking statements.
These risks and other factors include, among other things, those listed under
"Risk Factors" and elsewhere in this prospectus. In some cases, you can identify
forward-looking statements by terminology such as "may," "will," "should,"
"expects," "plans," "anticipates," "believes," "estimates," "predicts,"
"potential," "continue," "our future success depends," "seek to continue" or the
negative of these terms or other comparable terminology. These statements are
only predictions. Actual events or results may differ materially. In evaluating
these statements, you should specifically consider various factors, including
the risks outlined under "Risk Factors." These factors may cause our actual
results to differ materially from any forward-looking statement.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other person
assumes responsibility for the accuracy and completeness of these statements. We
do not intend to update any of the forward-looking statements after the date of
this prospectus to conform these statements to actual results except as required
by law.
16
<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds from the sale of the 4,000,000 shares of
common stock we are selling in this offering will be approximately
$146.0 million, or $168.0 million if the underwriters' over-allotment is
exercised in full, assuming an offering price of $38.50 per share and after
deducting estimated underwriting discounts and commissions and offering expenses
payable by us.
We expect to use the net proceeds of this offering for working capital and
general corporate purposes, including research and development. We may also use
a portion of the proceeds to acquire certain technology to be used in the
development of new product candidates. However, we have no present
understandings, commitments or agreements with respect to any potential
acquisitions and investments. Further, we have not determined the amounts we
plan to spend on any of the areas listed above or the timing of these
expenditures. As a result, our management will have broad discretion to allocate
the net proceeds from this offering. Pending these uses, we intend to invest the
net proceeds of this offering in short-term, investment-grade, interest-bearing
instruments.
DIVIDEND POLICY
We have never declared or paid cash dividends on our capital stock and do
not plan to pay any cash dividends in the forseeable future. Our current policy
is to retain all of our earnings to finance future growth.
17
<PAGE>
CAPITALIZATION
The following table presents our unaudited capitalization as of
September 30, 2000 on an actual basis and on an as adjusted basis after giving
effect to our receipt of the estimated net proceeds of $146.0 million from the
sale of 4,000,000 shares of our common stock in this offering at an assumed
public offering price of $38.50 and after deducting estimated underwriting
discounts and commissions and offering expenses payable by us. You should read
this table in conjunction with the consolidated financial statements and related
notes included in this prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000
-----------------------
ACTUAL AS ADJUSTED
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Capital lease obligations................................... $ 53 $ 53
Stockholders' equity:
Common stock, par value $.01 per share, 50,000,000 shares
authorized;
34,358,076 issued and outstanding, actual; 38,358,076
shares outstanding, as adjusted......................... 344 384
Additional paid-in capital................................ 185,530 331,510
Accumulated deficit....................................... (156,389) (156,389)
Accumulated other comprehensive income.................... 292 292
--------- ---------
Total stockholders' equity.............................. 29,777 175,797
--------- ---------
Total capitalization................................ $ 29,830 $ 175,850
========= =========
</TABLE>
This table excludes:
- 2,962,196 shares of our common stock reserved for issuance upon the
exercise of stock options outstanding as of September 30, 2000 at a
weighted average exercise price of $3.48 per share, of which options to
purchase 1,806,072 shares were then exercisable;
- 2,654,732 shares of our common stock reserved for issuance upon the
exercise of warrants outstanding as of September 30, 2000 at a weighted
average exercise price of $4.41 per share; and
- shares of our common stock reserved for issuance upon the exercise of
other warrants in an aggregate amount equal to the quotient obtained by
dividing a total of $11.1 million by the average closing sale price of our
common stock on the Nasdaq National Market for the five consecutive
trading days preceding the date of exercise, at an exercise price equal to
such average closing sale price.
18
<PAGE>
DILUTION
If you invest in our common stock in this offering, your interest will be
diluted to the extent of the difference between the public offering price per
share of our common stock and the pro forma net tangible book value per share of
our common stock after this offering.
Our net tangible book value as of September 30, 2000 was $29.8 million, or
$0.87 per share of common stock. Net tangible book value per share represents
our total tangible assets less total liabilities, divided by 34,358,076 shares
of common stock outstanding as of September 30, 2000. After giving effect to
this offering at an assumed public offering price of $38.50 per share, and after
deducting underwriting discounts and commissions and estimated offering
expenses, our as adjusted net tangible book value at September 30, 2000 would
have been $175.8 million, or $4.58 per share of common stock. This represents an
immediate increase in net tangible book value of $3.71 per share to existing
stockholders and an immediate dilution in net tangible book value of $33.92 per
share to new investors purchasing shares at the assumed public offering price.
The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed public offering price per share..................... $ 38.50
Net tangible book value per share as of September 30,
2000.................................................... $0.87
Increase per share attributable to new investors.......... 3.71
-----
As adjusted net tangible book value per share after the
offering.................................................. 4.58
-------
Dilution per share to new investors......................... $ 33.92
=======
</TABLE>
The above discussion excludes:
- 2,962,196 shares of our common stock reserved for issuance upon the
exercise of stock options outstanding as of September 30, 2000 at a
weighted average exercise price of $3.48 per share, of which options to
purchase 1,806,072 shares were then exercisable;
- 2,654,732 shares of our common stock reserved for issuance upon the
exercise of warrants outstanding as of September 30, 2000 at a weighted
average exercise price of $4.41 per share; and
- shares of our common stock reserved for issuance upon the exercise of
other warrants in an aggregate amount equal to the quotient obtained by
dividing a total of $11.1 million by the average closing sale price of our
common stock on the Nasdaq National Market for the five consecutive
trading days preceding the date of exercise, at an exercise price equal to
such average closing sale price.
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<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth our selected consolidated financial data as
of and for each of the five years ended June 30, 2000 and the three month
periods ended September 30, 2000 and September 30, 1999. The selected
consolidated statement of operations data for the years ended June 30, 2000,
1999 and 1998, and the selected consolidated balance sheet data as of June 30,
2000 and 1999, are derived from, and are qualified by reference to our audited
financial statements appearing elsewhere in this prospectus. The selected
consolidated statement of operations data for the three month periods ended
September 30, 2000 and September 30, 1999, and the selected consolidated balance
sheet data as of September 30, 2000 are derived from, and are qualified by
reference to, our unaudited interim financial statements appearing elsewhere in
this prospectus. The selected consolidated statements of operations data for the
years ended June 30, 1997 and 1996, and selected consolidated balance sheet data
as of June 30, 1997 and 1996, are derived from our audited consolidated
financial statements not included herein. The information below should be read
in conjunction with the consolidated financial statements and the related notes
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations," included elsewhere in this prospectus. The unaudited financial
statements have been prepared on the same basis as the audited financial
statements and, in our management's opinion, contain all adjustments consisting
of normal recurring adjustments necessary for a fair presentation of our
financial position and results of operations. Our historical results are not
necessarily indicative of results to be expected for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
------------------------------------------------------------------- -------------------------
1996 1997 1998 1999 2000 1999 2000
----------- ----------- ----------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues.................. $ 416 $ 421 $ 307 $ 3,401 $ 11,181 $ 4,005 $ 1,759
Operating expenses:
Research and development...... 9,622 7,418 5,745 6,098 8,878 1,831 3,569
Purchase of in-process
research and development
technology.................. -- -- 872 -- -- -- --
General and administrative.... 1,769 2,213 1,740 1,786 3,063 508 854
Total operating expenses.... 11,392 9,632 8,357 7,884 11,942 2,339 4,423
Net earnings/(loss) from
operations.................... (10,947) (9,211) (8,050) (4,482) (761) 1,666 (2,664)
Other income/(loss), net........ (7,974) 130 279 306 448 59 231
Net earnings/(loss)............. $ (18,923) $ (9,083) $ (7,611) $ (4,075) $ (238) $ 1,750 $ (2,433)
Net earnings/(loss) applicable
to common stockholders........ $ (18,923) $ (12,595) $ (8,216) $ (4,993) $ (238) $ 1,750 $ (2,433)
Earnings/(loss) per common
share:
Basic......................... (1.32) (0.70) (0.34) (0.20) (0.01) 0.07 (0.07)
Diluted....................... (1.32) (0.70) (0.34) (0.20) (0.01) 0.05 (0.07)
Average common shares
outstanding:
Basic......................... 14,379,064 17,930,164 24,210,340 25,525,061 29,520,576 25,913,856 33,307,465
Diluted....................... 14,379,064 17,930,164 24,210,340 25,525,061 29,520,576 33,684,371 33,307,465
</TABLE>
The following table contains a summary of our balance sheet on an actual
basis at June 30, 1996, 1997, 1998, 1999 and 2000 and September 30, 2000.
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
---------------------------------------------------- --------------
1996 1997 1998 1999 2000 2000
-------- -------- -------- -------- -------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and investments...................................... $2,797 $1,669 $1,742 $4,226 $17,329 $30,571
Working capital........................................... 1,019 419 2,138 3,770 15,324 31,843
Total assets.............................................. 8,506 6,350 5,877 7,171 19,344 37,876
Long-term debt and capital lease obligations,
less current portion.................................... 5,788 59 35 68 8 6
Total stockholders' equity................................ 777 4,462 4,311 5,329 15,368 29,777
</TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YOU SHOULD READ THE FOLLOWING DISCUSSION IN CONJUNCTION WITH OUR
CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES INCLUDED IN THIS PROSPECTUS.
OVERVIEW
We have incurred significant losses since our inception. As of
September 30, 2000, our accumulated deficit was approximately $156.4 million. We
have incurred net losses since inception as a result of research and development
and general and administrative expenses in support of our operations. We
anticipate incurring net losses over at least the next several years to continue
development of our TAP technology and product candidates, expand our operations,
conduct clinical trials and apply for regulatory approvals.
We have established collaborative agreements that allow companies to use our
TAP technology to develop products with antibodies. We have licensed certain
rights to our first two TAP product candidates to companies that have product
development and commercialization capabilities we wish to access in exchange for
fees, milestone payments and royalties on product sales. In other cases, we
license certain rights to our technologies to companies who intend to develop
products in exchange for fees, milestone payments and royalties on product
sales. Our collaborative partners include SmithKline Beecham, Genentech,
Abgenix, British Biotech, and MorphoSys. We expect that substantially all of our
revenue for the foreseeable future will result from payments under collaborative
arrangements. The terms of the collaborative agreements vary, reflecting the
value we add to the development of any particular product candidate.
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
REVENUES
We earn revenue from our collaborations, development fees and licensing
fees. Total revenues for the three months ended September 30, 2000 decreased 56%
to $1.8 million from $4.0 million for the three months ended September 30, 1999.
Our largest revenue source is our collaboration revenue, which accounted for
substantially all of our revenue in both three-month periods. The decrease in
revenues from the three month period ended September 30, 1999 to the three month
period ended September 30, 2000 was primarily attributable to lower
collaboration revenue under our agreement with SmithKline Beecham.
EXPENSES
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses for
the three months ended September 30, 2000 increased 95% to $3.6 million from
$1.8 million for the three months ended September 30, 1999. This increase was
primarily due to the increased costs associated with supporting our ongoing
huC242-DM1/SB-408075 Phase I/II human clinical trials, as well as the continued
development of huN901-DM1, in advance of human clinical studies, and our other
TAP product candidates. This increase was also due to an $825,000 expense
accrued for obligations incurred upon the signing of our September 29, 2000
license agreement with MorphoSys. We expect that future research and development
expenses will significantly increase in connection with the further development
of new TAP product candidates.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
for the three months ended September 30, 2000 increased 68% to $854,000 from
$508,000 for the three months ended September 30, 1999. This increase was
primarily due to increased administrative and business
21
<PAGE>
development staffing as well as increased expenditures associated with business
development and investor relations. Future general and administrative expenses
are also expected to increase in connection with the continued development of
our product candidates and technologies.
INTEREST INCOME
Interest income for the three months ended September 30, 2000 increased 260%
to $214,000 from $59,000 for the three months ended September 30, 1999. The
increase in interest income from 1999 to 2000 primarily resulted from the
increase in funds available for investment.
COMPARISON OF FISCAL YEARS ENDED JUNE 30, 2000 AND 1999
REVENUES
Total revenue for the year ended June 30, 2000, increased 229% to
$11.2 million from $3.4 million for the year ended June 30, 1999. Our largest
revenue source is our collaboration revenue, which accounted for 99% of our
revenue in fiscal 2000 and 88% in fiscal 1999. During fiscal 2000, we recognized
collaboration revenue of $6.2 million from SmithKline Beecham and $5.0 million
from Genentech. The increase in our revenues from fiscal 1999 to fiscal 2000 is
primarily attributable to multiple milestone payments and access fees recognized
under the SmithKline Beecham and Genentech collaboration agreements. Deferred
revenue of $1.8 million as of June 30, 2000 represents progress payments
received from collaborators pursuant to contract revenues not yet earned.
EXPENSES
RESEARCH AND DEVELOPMENT. Research and development expenses for the year
ended June 30, 2000 increased 46% to $8.9 million from $6.1 million for the year
ended June 30, 1999. This increase was primarily due to increased costs
associated with supporting our ongoing human clinical trials for
huC242-DM1/SB-408075, as well as the continued preclinical development of
huN901-DM1 and our other TAP product candidates. We expect that future research
and development expenses will significantly increase in connection with the
further development of new TAP product candidates.
GENERAL AND ADMINISTRATIVE. General and administrative expenses for the
year ended June 30, 2000 increased 72% to $3.1 million from $1.8 million for the
year ended June 30, 1999. This increase was primarily due to increased
administrative costs, in particular, increased expenditures associated with
business development and investor relations activities. We expect that future
general and administrative expenses will increase to support the continued
development of our product candidates and technologies.
INTEREST INCOME
Interest income for the year ended June 30, 2000 increased 51% to $379,000
from $251,000 for the year ended June 30, 1999. Interest income in both years
included interest earned on cash balances available for investment and, to a
lesser extent, in 1999, interest earned on a note receivable from an assignee of
one of our facilities. The increase in total interest income from 1999 to 2000
is a result of increases in the average daily invested cash balances resulting
from increased payments under collaboration agreements offset by the declining
average principal balance of the outstanding note receivable.
OTHER INCOME
Other non-operating income for the year ended June 30, 2000 increased 25% to
$69,000 from $55,000 for the year ended June 30, 1999. Non-operating income in
fiscal 2000 and 1999 primarily consisted of prior-period, retroactive favorable
insurance rate adjustments as well as gains on the sales of idle assets.
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COMPARISON OF FISCAL YEARS ENDED JUNE 30, 1999 AND 1998
REVENUES
Total revenues for the year ended June 30, 1999 increased to $3.4 million
from $307,000 for the year ended June 30, 1998. Our largest revenue source is
our collaboration revenue, which accounted for 88% of revenues in the year ended
June 30, 1999. We did not have any revenue from our collaborations in 1998.
During the year ended June 30, 1999, we recognized collaboration revenue of
$3.0 million from SmithKline Beecham attributable to multiple milestone payments
and access fees.
EXPENSES
RESEARCH AND DEVELOPMENT. Research and development expenses for the year
ended June 30, 1999 increased 6% to $6.1 million from $5.7 million for the year
ended June 30, 1998. This increase was primarily due to increased costs
associated with the development and manufacturing of huC242-DM1/SB-408075
components in advance of Phase I/II clinical studies, as well as the further
preclinical development of huN901-DM1.
GENERAL AND ADMINISTRATIVE. General and administrative expenses for the
year ended June 30, 1999 increased 3% to $1.8 million from $1.7 million in the
year ended June 30, 1999. This increase was primarily due to increased
administrative costs, in particular, increased expenditures associated with
business development and investor relations activities.
INTEREST INCOME
Interest income for the year ended June 30, 1999 increased 8% to $251,000
from $233,000 for the year ended June 30, 1998. Interest income in both years
included interest earned on cash balances available for investment and, to a
lesser extent, in 1998, interest earned on a note receivable from an assignee of
one of our facilities. The increase in total interest income from 1998 to 1999
is a result of increases in the average daily invested cash balances offset by
the declining average principal balance of the outstanding note receivable.
OTHER INCOME
Other non-operating income for the year ended June 30, 1999 increased 19% to
$55,000 from $46,000 for the year ended June 30, 1998. Non-operating income for
the years ended June 30, 1999 and 1998 primarily consisted of prior-period,
retroactive favorable insurance rate adjustments as well as gains on the sales
of idle assets.
INCOME TAXES
We have incurred net operating losses since inception and consequently we
have not paid any federal, state or foreign income taxes. As of June 30, 2000,
we had federal net operating loss carryforwards of approximately
$128.4 million. We also had federal research and development credit
carryforwards of approximately $8.9 million. These net operating loss
carryforwards will expire at various dates from 2001 through 2015 if we do not
utilize them before expiration. Our ability to utilize net operating losses and
credits may be subject to significant annual limitations due to the change in
the ownership provisions of federal and state tax laws. These annual limitations
may result in the expiration of net operating losses and credits before we are
able to use them.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2000, we had approximately $30.6 million in cash and
short-term investments. Since inception, we have financed our operations from
various sources, including primarily from issuances of equity securities, cash
received under collaboration agreements, amounts received from the assignment of
facilities and equipment, income earned on invested assets, and proceeds from
exercised
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<PAGE>
warrants and stock options. We have not generated any revenues from product
sales and we do not anticipate having a commercially approved product within the
foreseeable future. Substantially all cash used through September 30, 2000 was
used to support our various research and development activities. Our research
and development expenses are expected to increase significantly in the near term
as we continue our development efforts.
Net cash used in operations during the three months ended September 30, 2000
was $2.9 million compared to $2.2 million used in the three months ended
September 30, 1999. This 30% increase in operational cash use is largely due to
a $2.1 million increase in total operational expenses, of which $825,000
represented an accrued expense related to the September 29, 2000 MorphoSys
research agreement.
Net cash provided by operations during the year ended June 30, 2000 was
approximately $2.4 million, compared to the negative $3.5 million for the year
ended June 30, 1999. The significant increase in operational cash flow for the
year ended June 30, 2000 was primarily due to $13.0 million in collaboration
milestone and access fee payments received for the year ended June 30, 2000
offset by $11.9 million in operational expenses.
Net cash provided by investing activities was $4.1 million for the three
months ended September 30, 2000, and primarily represents sales of
higher-yielding, investment-grade corporate and U.S. Government debt securities.
Net cash provided from investing activities during the three-month period ended
September 30, 1999 was $246,000 and primarily resulted from payments received on
a note receivable originally issued in connection with the assignment of the
Company's former Canton, Massachusetts facility.
Net cash used in investing activities was $15.7 million for the year ended
June 30, 2000, and primarily represents purchases of higher-yielding,
investment-grade corporate and United States Government debt securities. Net
cash provided by investing activities for the year ended June 30, 1999 was
$844,000 and primarily resulted from payments received on a note receivable.
Net cash provided by financing activities increased by $13.5 million for the
three months ended September 30, 2000, to $16.8 million versus $3.3 million
provided by financing activities for the three months ended September 30, 1999.
The increase is largely due to the exercise of 303,842 warrants and 214,101
stock options during the three-month period ended September 30, 2000 and to the
September 7, 2000 issuance of 789,474 shares of our common stock to Abgenix. Our
total proceeds from all common stock issued for the three months ended
September 30, 2000 were $16.8 million.
Net cash provided by financing activities increased from $5.2 million for
the year ended June 30, 1999 to $10.5 million for the year ended June 30, 2000.
The increase is largely due to the exercise of 3.5 million warrants and options
during the year ended June 30, 2000 as well as the September 1999 issuance of
1.0 million shares of common stock to our collaborator, SmithKline Beecham.
Total proceeds from of all of our common stock issuances for the year ended
June 30, 2000 totaled $7.2 million. For each of 1999 and 2000, we also received
$3.4 million in connection with the issuance of convertible preferred stock to
BioChem Pharma by our ATI subsidiary. For the year ended June 30, 1999, we
received $1.5 million in proceeds from the sale of Series E Convertible
Preferred Stock in a private placement. For the year ended June 30, 2000, all
shares of this preferred stock were converted into 2.8 million shares of our
common stock. We have not issued any additional preferred stock.
Since June 30, 2000, we have received $15.0 million for the sale of our
common stock to Abgenix in connection with our collaboration with them.
Additionally, we have received from Abgenix $3.0 million of a $5.0 million
technology access fee payment.
We anticipate that the net proceeds from this offering, together with our
current working capital and future payments, if any, generated from our
collaboration arrangements, should be sufficient to fund our capital and
operational requirements for at least three years. We will require substantial
funds to conduct research and development activities, preclinical studies,
clinical trials and other activities
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relating to the development and commercialization of our TAP product candidates.
In addition, our cash requirements may vary materially from those now planned
because of results of:
- continued progress of our research and development programs;
- our ability to establish additional collaboration and licensing
arrangements;
- changes in our existing collaborative relationships;
- progress with preclinical studies and clinical trials;
- the time and costs involved in obtaining regulatory clearance for our
products;
- the costs involved in preparing, filing, prosecuting, maintaining and
enforcing patent claims; and
- competing technological and market developments.
We may seek additional financing prior to that time, such as through future
offerings of equity or debt securities or agreements with collaborators with
respect to the development and commercialization of products, to fund future
operations. However, we may not be able to obtain additional financing on
acceptable terms, if at all.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation--an interpretation of APB Opinion No. 25" (FIN 44). FIN 44
clarifies the application of APB Opinion No. 25 and among other issues clarifies
the following: the definition of an employee for purposes of applying APB
Opinion No. 25; the criteria for determining whether a plan qualifies as a
noncompensatory plan; the accounting consequence of various modifications to the
terms of previously fixed stock options or awards; and the accounting for an
exchange of stock compensation awards in a business combination. FIN 44 is
effective July 1, 2000, but certain conclusions in FIN 44 cover specific events
that occurred after either December 15, 1998 or January 12, 2000. We do not
expect the application of FIN 44 to have a material impact on our financial
position or results of operations.
In December 1999, the SEC issued Staff Accounting Bulletin 101, "Revenue
Recognition in Financial Statements" (SAB 101), which addresses accounting
policies to be applied in the recognition, presentation and disclosure of
revenues from contract partnerships, in financial statements filed with the SEC.
The net effect of SAB 101, when applicable, could defer revenue recognition for
some milestone payments previously received into future accounting periods. On
June 26, 2000, the SEC deferred the implementation of SAB 101 from the second
calendar quarter of 2000 until no later than the fourth calendar quarter of
2000, in order to provide companies with additional time to determine the effect
that a change in accounting policy under SAB 101 will have on their revenue
recognition practices. The implementation of SAB 101 will require companies to
report any changes in accounting principles at the time of implementation in
accordance with Accounting Principles Board Opinion No. 20, "Accounting
Changes". The implementation of SAB 101 could have a material effect on the
reported financial results for the year ended June 30, 2001. For example,
payments received under collaboration agreements may have to be recorded as
deferred revenue and recognized as revenue at a later period.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Financial Instruments and for Hedging Activities,"
which will be effective for our fiscal year 2001. SFAS No. 133 establishes
accounting and reporting standards requiring that every derivative instrument,
including certain derivative instruments embedded in other contracts, be
recorded in the balance sheet as either an asset or liability measured at its
fair value. The statement also requires that changes in the derivative's fair
value be recognized in earnings unless specific hedge accounting criteria are
met. SFAS 133 is not anticipated to have a significant impact on our operating
results or financial condition when adopted, since we currently do not engage in
hedging activities or hold derivative instruments.
25
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BUSINESS
We are a leading developer of antibody-based cancer therapeutics. We intend
to capitalize on the growing use of antibodies to treat cancer by using them to
deliver highly potent cell-killing, or cytotoxic, agents directly to tumor cells
with minimal harm to healthy tissue. We leverage our technology through
collaborations such as those we have entered into with SmithKline Beecham,
Genentech, Abgenix and British Biotech.
Our lead product candidate, huC242-DM1/SB-408075, is in two Phase I/II human
clinical trials for the treatment of colorectal, pancreatic and certain
non-small-cell lung cancers. In published preclinical studies, an unhumanized
version of this drug completely eliminated transplanted human colorectal tumors
in mice with no detectable toxicity. Our second product candidate, huN901-DM1,
is a treatment for small-cell lung cancer. huN901-DM1 is currently in
preclinical development and we expect it to enter clinical trials in the first
quarter of 2001. In published preclinical studies, huN901-DM1 completely
eliminated human small-cell lung cancer tumors in mice with no detectable
toxicity.
BACKGROUND
OVERVIEW OF CANCER
Cancer is a leading cause of death worldwide and the second leading cause of
death in the United States with approximately 1.2 million new cases and over
550,000 deaths expected this year. According to the American Cancer Society, the
direct costs of treating cancer patients were estimated to be $37 billion in the
United States in 1999. Cancer is a group of diseases characterized by
uncontrolled, abnormal cell growth. Cancerous cells divide more quickly than
normal tissue and can metastasize, or spread, throughout the body and aggregate
into groups of cells called metastases. These masses of cells, or tumors, grow
quickly, damage tissue, cause organ failure and eventually lead to death.
CURRENT CANCER TREATMENTS AND THEIR LIMITATIONS
The most common treatments for cancer include surgery, radiation therapy and
chemotherapy. Patients typically receive a combination of these treatments
depending upon the type and extent of their disease. Surgery is often inadequate
if the tumor is inaccessible, cannot be completely removed or has metastasized.
Radiation and chemotherapy are often of limited value due to complications
resulting from their administration, including toxicity and related severe side
effects.
Traditionally, the development of anti-cancer drugs has resulted in
chemotherapeutics that preferentially kill dividing cells, whether cancerous or
not. These cytotoxic drugs induce cell death by interfering with normal cell
processes. Since these cell processes may occur routinely in normal tissue,
cytotoxic drugs can cause serious side effects including disruption of the
immune, gastrointestinal and neurological systems. To limit side effects, these
cytotoxic drugs can only be used at sub-optimal doses. Treatment with a
combination of chemotherapy and radiation is similarly limited and, as a result,
may not be capable of eliminating the cancer.
In recent years, antibodies have emerged as a treatment for cancer.
Antibodies are proteins generated by the immune system. When the body recognizes
viruses, bacteria, foreign cells or other foreign substances, its immune system
will generally produce antibodies which attach to such foreign substances and
mark them for removal by the immune system. Individual antibodies are highly
specific for a particular antigen or marker. Since many cancer cells have
antigens on their surface that are either not found, or found in lower amounts,
on the surface of most healthy tissue cells, an antibody with the appropriate
specificity for those antigens may possibly be used as a treatment for that
cancer. In order to generate numerous antibodies for commercial use as
therapeutics, researchers have developed methods for cloning the cells that
produce specific antibodies. The resulting antibodies, referred to as monoclonal
antibodies, or MAbs, can potentially be used as therapeutic products.
At present, there are two primary approaches to the use of monoclonal
antibodies in cancer treatment. First, antibodies can be used on their own to
target and bind to tumor cells. These
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antibodies, often referred to as naked antibodies, can cause cell death by
either marking the cell for destruction by the immune system or by interfering
with normal cell processes. Although they can be an effective treatment, most
naked antibodies typically lack the ability to completely eliminate tumors on
their own.
A second approach is to link, or conjugate, other cell-killing agents, such
as radioisotopes, to the monoclonal antibody. Such radioisotope conjugates are
infused into the patient and circulate through the body for up to several days
before binding to the antigen on the cancer cells that have been targeted by the
MAb for destruction. Although this approach can be effective in killing tumor
cells, normal, healthy tissue is exposed to the toxic radiation which may cause
severe, undesirable side effects.
Conjugates using other cytotoxic agents may also be effective at targeting
and killing tumor cells; however, like radioisotope conjugates, they too may be
limited by problems resulting from the exposure of the cytotoxic agent to normal
tissue. The cytotoxic agents used in conjugates usually come in two forms,
protein-based toxins and small molecule drugs. Both types of cytotoxic agents
could present potential problems when used as part of a conjugate. Since
proteins are recognized by the body's immune system as foreign, conjugates that
utilize protein-based toxins elicit an immune response, and may be cleared from
the body and rendered ineffective. While conjugates with small molecule drugs
were developed to overcome this problem, few small molecule drugs are potent
enough to use in a conjugate for two reasons. First, the characteristics of the
circulatory system only allow for the delivery of a limited amount of antibody
to the tumor. Second, there are a limited number of antigens on the surface of
the cancerous cell to which the conjugates can bind, and antibodies can only
carry a limited number of cytotoxic agents. Accordingly, the overall amount of
cytotoxic agents that can be delivered to the cancerous cells is limited. As a
result, we believe that a highly potent cytotoxic agent is needed in order for
the conjugate to be an effective treatment for cancer. An additional
prerequisite is that conjugates require a stable mechanism to link the cytotoxic
agent to the antibody. If the linking mechanism is not stable, there is a risk
of releasing the cytotoxic agent before it reaches the cancerous cells, thereby
damaging or destroying normal tissue. This is particularly true for conjugates
with highly potent small molecule drugs.
THE IMMUNOGEN SOLUTION--TUMOR-ACTIVATED PRODRUGS
We have developed our tumor-activated prodrug, or TAP, technology to address
the therapeutic need for improved cancer therapies by delivering highly potent
cytotoxic agents directly to tumor cells with minimal harm to healthy tissue.
Each of our TAPs consists of a monoclonal antibody conjugated to a small
molecule drug, known as an effector molecule. Our small molecule effector drugs
are highly cytotoxic and the monoclonal antibodies we use target and bind to
specific antigens primarily expressed on cancerous cells. Once bound to the cell
surface, the cell internalizes our TAP, triggering the release of the effector
molecules which then kill the cell. Our TAPs are prodrugs because we design them
to remain nontoxic while circulating in the body and to become toxic only after
they are inside the cell.
Our extensive scientific knowledge of the selection and design of
appropriate small molecule effector drugs and the stable linkage of these drugs
to monoclonal antibodies results from years of focused research and has enabled
us to develop and enhance this technology as a potential treatment for cancer.
We believe that our experience provides us with a significant competitive
advantage in antibody-based cancer treatments.
We use our small molecule effector drug, DM1, in our first two product
candidates for the treatment of cancer. DM1 is a potent inhibitor of cell
division derived from maytansine, a natural product. Based on our in vitro and
animal studies, we believe that TAPs containing DM1 will be more effective at
killing tumor cells and less toxic than traditional chemotherapeutics. In mice
studies, our TAPs have shown therapeutic efficacy and complete cures at doses
with no detectable toxicity.
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We believe our TAP product candidates will offer advantages over other
cancer treatments because we design them to have all of the following
attributes:
- HIGH SPECIFICITY. We develop our TAPs with monoclonal antibodies that bind
to specific markers primarily expressed on certain types of cancer cells
to pinpoint treatment to the targeted cell or tumor.
- HIGH POTENCY. We use highly potent small molecule effector drugs which are
at least 100 to 1000 times more cytotoxic than traditional
chemotherapeutics.
- STABLE LINKAGE AND RELEASE. We design our TAPs with a highly stable link
between the monoclonal antibody and the effector molecule, allowing the
potency of the effector molecule to be released only after the TAP is
inside the cell.
- MINIMAL TOXICITY. We expect our TAPs will offer the potential for an
improved quality of life for patients due to reduced toxicity and more
tolerable side effects.
- NON-IMMUNOGENIC. We use fully-humanized monoclonal antibodies and
non-protein-based small molecule effector drugs in our TAP products. This
reduces the risk that our TAPs will elicit an attack by the body's immune
system, which could render them ineffective before they reach the
cancerous cells.
OUR STRATEGY
Our goal is to be the leader in the development of antibody-based cancer
treatments. To achieve our objective, we intend to implement the following
strategies:
- EXPAND OUR PRODUCT PIPELINE. We intend to grow our pipeline of product
candidates based on our proprietary TAP technology. We currently have two
TAP candidates, huC242-DM1/SB-408075 and huN901-DM1, which we have
partnered to expedite their development. In addition to these two product
candidates, we will seek to develop additional TAP products and antibodies
in-house for the treatment of cancer. We will seek to discover additional
cancer markers which we will use to develop new cancer therapeutics either
through in-house efforts or through strategic collaborations.
- LICENSE OUR TECHNOLOGY. We intend to continue to license our technology
and enter into collaborations. We anticipate that these arrangements will
generate revenue through milestone payments and royalties on the sales of
any resulting products. In addition, instead of cash payments, we may
receive access to new cancer markers as part of our future collaborations
which we could use to develop new TAPs.
- RETAIN SIGNIFICANT PRODUCT RIGHTS. We will seek to bring new product
candidates further into development prior to entering into collaborations
in order to receive greater long-term returns from our products. In
addition, we intend to enter into collaborations where we can retain
certain rights such as marketing or manufacturing. For example, we have
retained commercial rights in all territories outside of the European
Union and Japan, as well as worldwide manufacturing rights, for
huN901-DM1.
- BROADEN OUR TECHNOLOGY BASE. We believe that no single effector molecule
will be applicable to all clinical needs. At present, we have a broad
portfolio of effector molecules under development. We are leveraging our
experience to develop additional effector molecules. To augment our
technology base, we will continue to select and design new effector
molecules with different mechanisms of cell destruction. In certain
situations, we will also acquire technologies that are complementary to
our in-house expertise, such as fully-human antibody generation
capabilities.
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OUR PRODUCT CANDIDATES
Listed and discussed below are our product candidates that are being
developed in collaboration with our strategic partners.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
PRODUCT CANDIDATE CANCER INDICATION STATUS PARTNER
-----------------------------------------------------------------------------------------------
HUC242-DM1/SB-408075 Colorectal Cancer Phase I/II SmithKline
Pancreatic Cancer Beecham
Non-Small-Cell Lung Cancer
HUN901-DM1 Small-Cell Lung Cancer Preclinical British Biotech
HERCEPTIN-DM1 Multiple Cancers Research Genentech
MAB-DM1 CONJUGATES Multiple Cancers Research Genentech
MAB-DM1 CONJUGATES Multiple Cancers Research Abgenix
INTERNALLY DEVELOPED MABS Multiple Cancers Research MorphoSys
AGAINST A SINGLE MARKER WE
HAVE IDENTIFIED
</TABLE>
HUC242-DM1/SB-408075
Our most advanced TAP product candidate, huC242-DM1/SB-408075, consists of
the humanized C242 monoclonal antibody linked to our small molecule effector
drug DM1 and is in two Phase I/II clinical trials. We are developing this TAP
with SmithKline Beecham for the treatment of colorectal, pancreatic and certain
non-small-cell lung cancers.
TARGET MARKET. According to the American Cancer Society, there will be
130,200 new cases of colorectal cancer in the United States in 2000, and
56,300 deaths from the disease. The American Cancer Society also estimates
that in the United States during 2000 there will be 28,300 new cases of
pancreatic cancer and 28,200 deaths.
DEVELOPMENT. We began a Phase I/II single dose trial of
huC242-DM1/SB-408075 in colorectal, pancreatic and non-small-cell lung
cancer patients in December 1999. SmithKline Beecham started a multi-dose
Phase I/II trial in September 2000. We expect some data from the first trial
to be presented at an international cancer drug conference in Amsterdam in
November 2000.
In published preclinical studies, a non-humanized version of
huC242-DM1/SB-408075 completely eliminated transplanted human colorectal
tumors in immunodeficient mice at very low doses with no detectable
toxicity. In comparison, the currently used chemotherapeutic agents,
5-fluorouracil and irinotecan, were unable to eliminate the tumors in the
mice. Subsequent studies in non-human primates have demonstrated this TAP's
safety and shown the pharmacokinetic profile to be advantageous. In
additional preclinical studies, this TAP has shown similar results in
treating pancreatic and non-small-cell lung cancer in mice.
We believe the C242 antibody possesses the specificity needed for use as
a targeting agent in a TAP. It binds to all colorectal cancers to some
degree and binds strongly to approximately 65% of colorectal cancers. In
addition, laboratory tests indicate that the marker targeted by the C242
antibody is found on all pancreatic tumors and a majority of non-small-cell
lung tumors tested. We have linked huC242 to our proprietary small molecule
effector drug, DM1. We do not expect huC242-DM1/SB-408075 to elicit an
immune response in patients. This lack of immune response should allow for
the administration of repeat courses of therapy. huC242-DM1/SB-408075,
therefore, may be a suitable agent for shrinking or eliminating large tumor
masses, either used alone or in combination with other chemotherapeutics.
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HUN901-DM1
Our second TAP product candidate, huN901-DM1, consists of the humanized N901
monoclonal antibody conjugated to DM1. We are developing this TAP in partnership
with British Biotech for the treatment of small-cell lung cancer. We expect
British Biotech to file an Investigational New Drug, or IND, application to
initiate the regulatory process to begin human clinical studies in the United
States in the first quarter of 2001.
TARGET MARKET. According to the American Cancer Society, there will be
164,100 cases of lung cancer in the United States in 2000. Approximately 20%
of these are expected to be small-cell lung cancer. The five-year survival
rate for small-cell lung cancer is 6%.
DEVELOPMENT. In published preclinical animal studies, huN901-DM1
completely eliminated human small-cell lung cancer tumors in immunodeficient
mice at doses that showed no detectable toxicity. In a small-cell lung
cancer mouse survival model, huN901-DM1 showed significant survival benefits
over the existing standard of care. In comparison, the currently used
chemotherapeutic agents, cisplatin and etoposide, were unable to eliminate
the tumors in the mice resulting in the death of the mice. Subsequent
studies in non-human primates have demonstrated huN901-DM1's safety and
shown the pharmacokinetic profile to be advantageous. In additional
preclinical studies, a very low dose of huN901-DM1 combined with the
chemotherapeutic, Taxol-Registered Trademark-, resulted in complete cures of
small-cell lung cancer tumors in mice, indicating that the two treatments
together may be synergistic.
We believe the huN901 antibody possesses the specificity needed for use
as a targeting agent in a TAP because it binds to all small-cell lung
cancers. We do not expect huN901-DM1 to elicit an immune response, which
should allow for repeat courses of therapy. Therefore, huN901-DM1 may be a
suitable treatment for small-cell lung cancer, either used alone or in
combination with other chemotherapeutics.
HERCEPTIN-DM1
We have licensed our maytansinoid technology, including DM1, to Genentech
for the development of a treatment for cancers expressing the HER2 antigen.
Herceptin-DM1 is a TAP combining DM1 with Genentech's monoclonal antibody
Herceptin-Registered Trademark-. As a naked antibody,
Herceptin-Registered Trademark- is currently approved for use as first-line
therapy in combination with Taxol-Registered Trademark- and as a single agent in
second- and third-line therapy in patients with metastatic breast cancer who
have tumors that overexpress the HER2 protein. Herceptin-Registered Trademark-
generated sales of $188.4 million in 1999 and $208.0 million for the first nine
months of 2000.
OTHER PRODUCTS
In addition to Herceptin-DM1, we have licensed our maytansinoid technology
to Genentech for use in a collaborative research project directed towards their
development of maytansinoid-based TAPs linked to various other antibodies owned
by Genentech. Additionally, we have licensed our maytansinoid technology to
Abgenix for use with its fully-human antibodies to develop additional TAP
products. We also began a collaboration with MorphoSys in which it will attempt
to identify fully-human antibodies against one of our cell surface targets that
we may then develop as an anti-cancer therapeutic.
CORPORATE COLLABORATIONS
As part of our business, we enter into collaboration agreements with third
parties. We have licensed certain rights to our first two TAP products to
companies with product development and commercialization capabilities we wish to
access, in exchange for fees, milestones payments, and royalties on product
sales. In other cases, we license certain rights to our technologies such as our
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maytansinoid technology to companies who intend to develop products in exchange
for fees, milestone payments and royalties on product sales. To enhance our
technology base and expand our product pipeline, we also license technology from
third parties. Our principal collaborations and licenses are discussed below.
SMITHKLINE BEECHAM PLC
In February 1999, we entered into a collaboration with SmithKline Beecham to
develop and commercialize our first TAP, huC242-DM1/SB-408075. Under the terms
of the agreement, SmithKline Beecham received exclusive worldwide rights to
commercialize huC242-DM1/SB-408075, except in certain Far East territories. In
addition to royalties on any net sales of the product, we could receive
milestone payments totaling up to $41.5 million. Through October 16, 2000, we
have received five milestone payments under the SmithKline Beecham agreement for
a total of $11.5 million in cash. In connection with the agreement, we received
an additional $2.5 million from the sale of our common stock to SmithKline
Beecham. SmithKline Beecham may terminate this agreement on a country by country
basis, or in its entirety, upon written notice to us, based on a reasonable
determination by SmithKline Beecham, that huC242-DM1/SB-408075 does not justify
continued development or marketing in such country or countries. Either party
can terminate this agreement for any material breach by the other party that
remains uncured for a certain period of time.
BRITISH BIOTECH PLC
In May 2000, we entered into a collaboration in which we granted to British
Biotech the exclusive right to develop and commercialize our second TAP,
huN901-DM1, in the European Union and Japan. We retain full rights to sell the
product in the United States and other territories, as well as to manufacture
the product worldwide. Under the agreement, British Biotech is responsible for
conducting the clinical trials necessary to achieve regulatory approval in the
United States, the European Union, and Japan, and will reimburse us for the cost
of producing material for clinical trials. We have received one payment from
British Biotech of $1.5 million and will receive royalties on any net sales of
the product in the European Union and Japan. We are obligated to make a one-time
milestone payment to British Biotech upon United States regulatory approval. In
addition, British Biotech may terminate this agreement in whole or on a country
by country basis if data emerges from either the SmithKline Beecham clinical
studies of huC242-DM1/SB-408075 or the British Biotech clinical studies of
huN901-DM1 that does not justify continued development or marketing of
huN901-DM1. Either party can terminate this agreement for any material breach by
the other party that remains uncured for a certain period of time.
GENENTECH, INC.
In May 2000, we entered into two collaborations with Genentech. The first
agreement gives Genentech an exclusive license to use our maytansinoid TAP
technology to develop products with antibodies targeting the HER2 antigen, such
as Herceptin-Registered Trademark-. Genentech will be responsible for
manufacturing, product development and marketing of products resulting from the
license, and will reimburse us for any preclinical and clinical materials we
make for them under the agreement. In connection with this agreement, we
received a $2.0 million payment in May 2000. In addition to royalties on any net
sales of the product, we could receive up to approximately $40.0 million in
milestone payments. This agreement expires upon the expiration of the final
royalty payment obligation. Genentech, upon notice, may terminate this agreement
at any time and either party can terminate this agreement for any material
breach by the other party that remains uncured for a certain period of time.
The second agreement provides Genentech access to our maytansinoid TAP
technology for its antibody product research efforts, along with options to
obtain exclusive product licenses for a limited number of antigen targets over
the five-year term of the agreement. Genentech paid us a technology access fee
of $3.0 million and could pay milestone payments of up to $39.0 million per
target, as well
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as royalties on net sales of any resulting products. Genentech has a right to
extend its options for a specified period of time. This agreement will expire
upon both parties signing a more definitive agreement relating to this
collaboration.
ABGENIX, INC.
In September 2000, we entered into a collaboration agreement with Abgenix.
The agreement provides Abgenix with access to our maytansinoid TAP technology
for use with Abgenix's antibodies along with options to obtain product licenses
for antigen targets. We expect to receive a total of $5.0 million in technology
access fee payments, of which we have received $3.0 million, as well as
potential milestone payments and royalties on net sales of any resulting
products. In addition, on September 7, 2000 Abgenix purchased $15.0 million of
our common stock in accordance with the agreement. Abgenix has a right to extend
its options for a specified period of time for an extension fee. Our agreement
with Abgenix will terminate once the specified time period during which we have
given Abgenix access to our technology ends. Either party can terminate the
agreement for any material breach by the other party that remains uncured for a
certain period of time.
MORPHOSYS AG
In September 2000, we entered into a collaboration agreement with MorphoSys
of Martinsried, Germany. Pursuant to this agreement, MorphoSys will identify
fully-human antibodies against a specific cell surface marker that we have
identified through our apoptosis research and is associated with a number of
forms of cancer. We intend to develop products using antibodies generated by
MorphoSys against this marker. We paid MorphoSys a technology access payment and
will pay development-related milestone payments and royalties on net sales of
any resulting products. We can terminate this agreement unilaterally at any time
and either party can terminate the agreement for any material breach by the
other party that remains uncured for a certain period of time.
OTHER LICENSES
In June 1998, we entered into a collaboration with Pharmacia & Upjohn AB
(now Pharmacia Corp.) under which we received rights to commercialize
maytansinoid products that incorporate the C242 antibody for the treatment of
cancer in exchange for a royalty on product sales and other payments. As a
result, Pharmacia Corp. will receive a portion of the royalties resulting from
any sales of huC242-DM1/SB-408075.
From July 1997 through April 2000, our subsidiary Apoptosis
Technology, Inc., or ATI, and BioChem Pharma Inc. were engaged in a
collaboration under which ATI granted BioChem an exclusive worldwide license to
ATI's proprietary screens based on two families of proteins involved in
apoptosis, or programmed cell death, for use in identifying leads for drug
development. In accordance with the agreement, BioChem purchased a total of
$11.1 million in non-voting, non-dividend-bearing convertible stock of ATI
accompanied by warrants to purchase shares of our common stock. Rights to all
targets and screens delivered to BioChem reverted to ATI effective August 1,
2000. In the event BioChem identifies leads and develops products based on the
work of this collaboration, ATI will receive milestone payments and royalties on
any future product sales.
We also have licenses with third parties, including other companies and
academic institutions, to gain access to markers, techniques and materials for
drug discovery and product development and the rights to use those markers,
techniques and materials to make our products. These include rights to certain
antibodies, software used in antibody development, and apoptosis technology.
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RESEARCH AND DEVELOPMENT PROGRAMS
We have established an extensive research and development effort to augment
our existing product pipeline. We focus our efforts primarily in three areas:
- identifying additional antigens;
- developing new humanized antibodies using our proprietary humanization
technology; and
- expanding our portfolio of effector molecules.
ANTIGEN IDENTIFICATION. Our ATI subsidiary has identified apoptosis
regulatory processes. Some of these processes may involve cell surface
proteins that may be appropriate markers for antibody-based therapeutics. In
addition, we have ongoing in-house efforts to validate markers for potential
use in our antibody-based therapeutics.
MONOCLONAL ANTIBODY HUMANIZATION. Our monoclonal antibody humanization
technology is designed to rapidly convert mouse antibodies to
non-immunogenic, humanized antibodies. Our methodology humanizes the mouse
antibody without compromising the binding characteristics of the mouse
antibody. The methodology is proprietary and distinct from other
humanization technologies.
EFFECTOR MOLECULES. To broaden our TAP technology we are developing new
small molecule effector drugs that work differently than the maytansinoid
class of drugs. Specifically, we are working with drugs that belong to the
taxane, anthracycline, and sequence-selective groove binder families of
cytotoxic agents. We will select effector molecule candidates that are
significantly more potent than the chemotherapeutics currently used in the
treatment of cancer and that can be chemically conjugated to a monoclonal
antibody using our linkage technology. The taxanes we are evaluating are
highly potent, linkable derivatives of docetaxel. As part of this effort, we
began a research collaboration with the State University of New York at
Stony Brook in February 2000 to develop novel derivatives of docetaxel.
Similarly, the anthracyclines we are evaluating are highly potent, linkable
derivatives of doxorubicin. DC1, another effector molecule we have in
development, is a sequence-selective groove binder.
PATENTS AND PROPRIETARY TECHNOLOGY
We seek patent protection for our proprietary technologies and products,
including those of our subsidiary, ATI, in the United States, Europe, Japan and
elsewhere. Among others, we have received patents in the United States and
Europe claiming the use of maytansinoids in conjugated form, United States
patents claiming use of DC1 and its analogs in immunoconjugates, and patents
claiming apoptosis technology.
We have also submitted additional patent applications in the United States,
Europe, Japan, and elsewhere covering proprietary small molecule drug
derivatives, TAPs, apoptosis technology and use of certain of these products and
inventions for indicated diseases. We expect our work will also lead to other
patent applications. In all such cases, we or ATI will be the owner of such
patents or have an exclusive license to the technology covered by the patents.
The patent applications may not issue as patents or if any patents are issued
they may not provide us or ATI with adequate protection against competitors with
respect to the covered products, technologies or processes.
MANUFACTURING AND SUPPLY
We have a pilot manufacturing facility that we operate in compliance with
current good manufacturing practice, or GMP, where we produce TAPs for clinical
trials. Currently, we have one operational manufacturing suite and a second
manufacturing suite under construction, which we expect to be operational in
early 2001. We anticipate that the capacity of these two suites will be
sufficient for us to produce approximately five products for clinical trials at
any one time. We expect that we have ample capacity to meet our obligations to
supply huC242-DM1/SB-408075 and huN901-DM1 under
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their respective collaboration agreements. We have enough space in the facility
to build two additional manufacturing suites in the future.
We rely on contract manufacturers to supply the antibody, linker molecule
and effector molecule components of our products. We then conjugate these
components into the TAP ourselves. We also rely on a contract vendor for filling
and labeling individual vials. Our quality department conducts testing to ensure
that the vials meet all specifications for clinical use. We intend to rely on
our partners and contract manufacturers to produce TAPs for commercial use.
Under our collaboration agreement with SmithKline Beecham, we supply product
for use in the two current Phase I/II clinical trials of huC242-DM1/SB-408075.
To date, we have manufactured all of the product used in these studies.
SmithKline Beecham will manufacture product for clinical and commercial use
after the conclusion of the two clinical trials.
Under our collaboration agreement with British Biotech, we will supply
huN901-DM1 for clinical and commercial use. British Biotech will reimburse us
for our cost of supplying the product.
Under our collaboration agreements with Genentech and Abgenix, they are
responsible for the manufacture of any resulting products. However, they may
request that we produce TAPs for preclinical and early clinical trials, and will
reimburse us for our cost of supplying these products. In this case, our
partners will supply the antibody component, and we will rely on contract
manufacturers for the other components.
One of the primary components required to develop DM1 is its precursor,
ansamitocin P3. Currently only one vendor manufactures and is able to supply us
with this material. We are investigating other suppliers to provide us with this
material to reduce our reliance on a single vendor.
MARKETING AND SALES
We do not currently have a marketing and sales department. In the future, we
may develop our own sales and marketing capabilities or enter into arrangements
with established pharmaceutical marketing and distribution partners.
huC242-DM1/SB-408075, if it receives the proper regulatory approval, will be
marketed worldwide, except for certain Far East territories, by SmithKline
Beecham. British Biotech has the right to market huN901-DM1 in the European
Union and Japan. We retain the rights to market huN901-DM1 everywhere else,
including in the United States. As this product reaches later stages of
development, we will determine whether to market this product ourselves or
through a third party.
COMPETITION
We focus on highly competitive areas of product development. Our competitors
include major pharmaceutical companies, biotechnology companies, and academic
institutions. Many existing and potential competitors have substantially greater
scientific research and product development capabilities, as well as greater
financial, marketing and human resources than we do. In addition, many
biotechnology firms have formed collaborations with large, established
pharmaceutical companies to support research, development and commercialization
of products that may be competitive with ours.
In particular, competitive factors within the cancer therapeutic market
include:
- the safety and effectiveness of products;
- the timing of regulatory approval, particularly fast-track approval
status, and commercial introduction of products;
- special regulatory designation of products, such as Orphan Drug status;
and
- the effectiveness of marketing and sales efforts.
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Our competitive position also depends on our ability to develop effective
proprietary products, implement production and marketing plans, including
collaborations with other companies with greater marketing resources than ours,
obtain patent protection and secure sufficient capital resources.
Continuing development of conventional and targeted chemotherapeutics by
pharmaceutical and biotechnology companies and academic institutions may result
in the identification of new compounds that may compete with our product
candidates. In addition, other monoclonal antibodies or antibody conjugates for
the treatment of cancer may compete with our product candidates.
REGULATORY MATTERS
The FDA and other federal, state and local entities and comparable
regulatory agencies in foreign countries impose substantial requirements upon
the research, development, manufacture and marketing of pharmaceutical products.
Therapeutic monoclonal antibody products are most often considered biological
products and are subject to review by the FDA's Center for Biologics Evaluation
and Research, while new chemical entities are reviewed by the FDA's Center for
Drug Evaluation and Research. We expect that huC242-DM1/SB-408075, huN901-DM1
and other of our TAP product candidates will be reviewed by the Center for Drug
Evaluation and Research.
The process required by the FDA before our product candidates may be
marketed in the United States typically involves the following:
- Performance of preclinical laboratory and animal tests;
- Submission of an investigational new drug application, or IND, which must
become effective before clinical trials may begin;
- Completion of adequate and well-controlled human clinical trials to
establish the safety and efficacy of the product candidate for its
intended use;
- Submission of a new drug application, or NDA, to the FDA; and
- FDA approval of the NDA, including approval of all product labeling and
advertising.
The process in other countries is similar.
Preclinical testing includes laboratory evaluation and development of the
chemistry, manufacturing and control of the product candidate as well as animal
studies to assess the potential safety and effectiveness of the product
candidate. Preclinical safety tests must be conducted in compliance with FDA
good laboratory practices regulations, or GLPs. The results of the preclinical
tests, including information abut the method by which the product candidate is
believed to work in the human body, any toxic effects of the compound found in
the animal studies and how the product candidate is manufactured are submitted
to the FDA as part of an IND to be reviewed by the FDA prior to the commencement
of human clinical trials. The IND must also include information about how, where
and by whom the clinical studies will be conducted. If the FDA does not object,
an IND will become effective after 30 days, but if the FDA raises concerns, the
IND sponsor and the FDA must resolve these concerns before the clinical trials
can begin. Our submission of an IND may not result in FDA authorization to
commence a clinical trial. Further, an independent institutional review board,
or IRB, at each medical center at which a clinical trial will be performed must
review and approve the plan for any clinical trial before it commences.
Human clinical trials are usually conducted in three sequential phases that
may overlap. In Phase I, the drug is typically introduced into healthy human
subjects or patients to determine the initial safety profile, identify side
effects and evaluate dosage tolerance, distribution and metabolism. In Phase II,
the drug is studied in a limited patient population with the target disease to
determine preliminary efficacy and optimal dosages and to expand the safety
profile. In Phase III, large-scale comparative trials are conducted in patients
with the target disease to provide sufficient data for the proof of efficacy and
safety required by regulatory agencies. In the case of drugs for treatment of
cancer and other life-threatening diseases, the initial human testing is often
conducted in patients rather than in
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healthy volunteers. Because these patients already have the target disease,
these studies may provide initial evidence of efficacy traditionally obtained in
Phase II trials, and thus these trials are frequently referred to as Phase I/II
trials.
We may not successfully complete Phase I/II or Phase III testing of our
product candidates within any specific time period, if at all. Furthermore, the
FDA, an IRB, our collaboration partner or we may suspend a clinical trial at any
time for various reasons, including a finding that the subjects or patients are
being exposed to an unacceptable health risk.
The results of product development, preclinical studies and clinical studies
are submitted to the FDA as part of a NDA. The FDA may disapprove a NDA if the
applicable regulatory criteria are not satisfied or it may require additional
clinical data. Even if such data is submitted, the FDA may ultimately decide
that the NDA does not satisfy the criteria for approval. Once issued, the FDA
may withdraw a product approval if compliance with regulatory standards is not
maintained or if problems occur after the product reaches the market. In
addition, the FDA may require testing and surveillance programs to monitor the
effect of approved products which have been commercialized. The FDA has the
power to prevent or limit further marketing of a product based on the results of
these post-marketing programs.
We intend to conduct clinical trials not only in accordance with FDA
regulations, but also guidelines established by the International Committee on
Harmonization. Approval of a product by the regulatory authorities of foreign
countries must be obtained prior to the marketing of that product in those
countries regardless of the regulatory status of the product in the United
States and vice versa. Regulatory approval in Europe is obtained through the
European Agency for the Evaluation of Medicinal Products, but regulations
governing pharmaceutical sales may vary from country to country. We intend to
rely on foreign licensees to obtain regulatory approvals to market our products
in foreign countries.
The testing and approval process requires substantial time, effort, and
financial resources. Review times also depend on a number of factors including,
but not limited to, the severity of the disease being treated, the availability
of alternative treatments and the risks and benefits demonstrated in clinical
trials.
Under the FDA Modernization Act, the FDA may facilitate the development and
expedite the review of a drug if it is intended for the treatment of a serious
or life-threatening condition and it demonstrates the potential to address unmet
medical needs for that condition. Under this program, the FDA can, for example,
review portions of a NDA for a "fast track" product before the entire
application is complete, thus potentially beginning the review process at an
earlier time. In addition, anti-cancer agents may be granted initial approval
based on objective evidence of response, rather than on the
statistically-improved, disease-free and/or overall survival criteria that are
commonly utilized. The sponsor of a product approved under this accelerated
mechanism may be required to follow up with further studies of clinical safety
and effectiveness in a larger group of patients. We believe that our product
candidates should be qualified for fast track status; however, we cannot
guarantee that the FDA will grant any of our requests for fast track
designation, that any fast track designation would affect the time of review, or
that the FDA will approve the NDA submitted for any of our product candidates,
whether or not fast track designation is granted. Additionally, the FDA's
approval of a fast track product can include restrictions on the product's use
or distribution, such as permitting use only for specified medical procedures or
limiting distribution to physicians or facilities with special training and
experience.
Under the Orphan Drug Act, the FDA may grant orphan drug designation to
drugs intended to treat a disease or condition that affects fewer than 200,000
individuals in the United States. An orphan drug designation must be requested
before submitting a NDA, but if granted does not convey any advantage in or
shorten the duration of the regulatory review and approval process. However, a
drug that receives an orphan drug designation and is the first product of its
kind to receive FDA approval for a particular indication will be entitled to a
seven-year exclusive marketing period in the United
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States for that indication. We may pursue orphan drug status for product
candidates intended for qualifying patient populations. Although obtaining FDA
approval to market a product with orphan drug exclusivity can be advantageous,
it may not provide us with a material commercial advantage.
Satisfaction of FDA requirements or similar requirements of foreign
regulatory agencies typically takes several years and the actual time required
may vary substantially, based upon the type, complexity and novelty of the
product or disease. Government regulation may delay or prevent marketing of our
product candidates for a considerable period of time and impose costly
procedural requirements upon our activities. We cannot be certain that the FDA
or any other regulatory agency will grant approvals for our product candidates
on a timely basis, if at all. Success in early stage clinical trials does not
assure success in later stage clinical trials. Data obtained from clinical
activities is not always conclusive and may be susceptible to varying
interpretations that could delay, limit or prevent regulatory approval. Even if
a product candidate receives regulatory approval, the approval may be
significantly limited to specific diseases and dosages. Further, even after
regulatory approval is obtained, later discovery of previously unknown problems
with a product may result in restrictions on the product or even complete
withdrawal of the product from the market.
Any products manufactured or distributed by us pursuant to FDA approvals are
subject to continuing regulation by the FDA, including record keeping
requirements and reporting of adverse experiences with the drug. Drug
manufacturers and their subcontractors are required to register their
establishments with the FDA and certain state agencies, and are subject to
periodic unannounced inspections by the FDA and certain state agencies for
compliance with regulations and guidelines including those relating to good
manufacturing practices, or GMPs. We cannot be certain that we or our suppliers
will be able to comply with the GMPs and other FDA or other agency regulatory
requirements.
We also comply with the National Institute of Health Guidelines for Research
Involving Recombinant DNA Molecules, which require, among other things, that our
Institutional Biosafety Committee meet certain standards and that clinical
trials involving the transfer of recombinant DNA be registered with the
Recombinant DNA Advisory Committee.
The policies of the FDA and other regulatory authorities may change and
additional government regulations may be enacted which could prevent or delay
approval of our product candidates. We cannot predict the likelihood, nature or
extent of adverse governmental regulation which might arise from future
legislative or administrative action, either in the United States or abroad.
We are also subject to federal, state and local laws, rules regulations and
policies governing the use, generation, manufacture, storage, air emission,
effluent discharge, handling and disposal of certain materials and waste.
EMPLOYEES
As of September 30, 2000, we had 64 full-time employees, of whom 42 were
engaged in our research and development activities. Of our employees, 26 hold
post-graduate degrees, including 15 Ph.D. degrees. We consider our relations
with our employees to be good. None of our employees is covered by a collective
bargaining agreement. We have entered into confidentiality agreements with all
of our employees and other consultants.
FACILITIES
We lease approximately 37,700 square feet of laboratory and office space at
one location in Cambridge, Massachusetts, through a lease that terminates
June 30, 2003. We also lease 17,550 square feet of manufacturing and office
space at one location in Norwood, Massachusetts. Effective November 1, 2000, we
will lease an additional 13,200 square feet of space in the Norwood facility.
The lease for the entire 30,750 square feet of space in the Norwood facility
terminates June 30, 2008.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth information regarding our executive officers
and directors as of September 30, 2000:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- -------- --------
<S> <C> <C>
Mitchel Sayare, Ph.D................... 52 President, Chief Executive Officer and Chairman of
the Board
Walter A. Blattler, Ph.D............... 51 Executive Vice President, Science and Technology,
Treasurer and Director
John M. Lambert, Ph.D.................. 49 Senior Vice President, Pharmaceutical Development
Pauline Jen Ryan....................... 33 Vice President, Business Development
David W. Carter........................ 61 Director
Michael R. Eisenson.................... 45 Director
Stuart F. Feiner....................... 52 Director
Mark Skaletsky......................... 52 Director
</TABLE>
------------------------
MITCHEL SAYARE, PH.D. joined ImmunoGen in 1986. He has been our Chief
Executive Officer and Director since 1986 and Chairman of the Board since 1989.
From 1986 until 1992, and since 1994, Dr. Sayare has served as our President.
From 1982 to 1985, Dr. Sayare was Vice President for Development at
Xenogen, Inc., a biotechnology company specializing in monoclonal antibody-based
diagnostic systems for cancer. From 1977 to 1982, Dr. Sayare was Assistant
Professor of Biophysics and Biochemistry at the University of Connecticut. He
holds a Ph.D. in Biochemistry from Temple University School of Medicine.
Dr. Sayare serves on the Board of Directors of ImmuCell Corporation, in addition
to a number of private companies.
WALTER A. BLATTLER, PH.D. joined ImmunoGen in 1987. He has served as a
Director since September 1995, served as Vice President, Research and
Development from 1987 to October 1994 and as Senior Vice President, Research and
Development from October 1994 to October 1996. Since 1996, Dr. Blattler has
served as Executive Vice President, Science and Technology. From 1981 to 1987,
Dr. Blattler was Chief Scientist for the ImmunoGen-supported research program at
the Dana-Farber Cancer Institute. Dr. Blattler received his Ph.D. from the Swiss
Federal Institute of Technology in Zurich in 1978.
JOHN M. LAMBERT, PH.D. joined ImmunoGen in 1987. Dr. Lambert served as
Senior Director of Research from October 1994 to November 1996 and as Vice
President, Research and Development from November 1996 to July 2000, when he was
appointed Senior Vice President, Pharmaceutical Development. Prior to joining
ImmunoGen, Dr. Lambert was Assistant Professor of Pathology at the Dana-Farber
Cancer Institute, where he worked on the ImmunoGen supported research program.
Dr. Lambert received his Ph.D. in Biochemistry from Cambridge University in
England.
PAULINE JEN RYAN rejoined ImmunoGen in 1999. From May 1999 to February 2000,
Ms. Ryan served as Senior Director, Business Development. From 1998 to 1999,
Ms. Ryan was a Vice President of Capital Management Consulting, Inc., a
biomedical consulting firm. From 1994 to 1997, she was Director of Business
Development of Organogenesis, Inc., a biotechnology company. From 1993 to
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1994, she was our Manager, Business Development. Ms. Ryan holds an M.B.A. from
Northwestern University's Kellogg Graduate School of Management.
DAVID W. CARTER has served as a member of our Board of Directors since
June 1997. He is Co-Chief Executive Officer and a Director of Xenogen, Inc.,
which he joined in 1997. From 1991 to 1997, Mr. Carter was the President and
Chief Executive Officer of Somatix Therapy Corporation, a biotechnology company.
Mr. Carter also serves on the Board of Directors of Cell Genesys, Inc, also a
biotechnology company.
MICHAEL R. EISENSON has served as a member of our Board of Directors since
1986. He is President and Chief Executive Officer of Charlesbank Capital
Partners, LLC, the successor to Harvard Private Capital Group, Inc., which he
joined in 1986. Between 1981 and 1986, Mr. Eisenson held the position of Manager
with Boston Consulting Group. Mr. Eisenson serves on the Board of Directors of
CCC Information Services Group Inc., Playtex Products, Inc., and United Auto
Group, Inc.
STUART F. FEINER has served as a member of our Board of Directors since
1984. He has been Executive Vice President, General Counsel and Secretary of
Inco Limited, a mining company, since August 1993, after having served as Vice
President, General Counsel and Secretary of Inco Limited from April 1992 to
August 1993. From January 1984 until April 1992, Mr. Feiner was President of
Inco Venture Capital Management, the venture capital unit of Inco Limited.
Mr. Feiner serves on the Board of Directors of several private companies funded
by Inco Venture Capital Management.
MARK SKALETSKY has served as a member of our Board of Directors since
March 2000. He has been President, Chief Executive Officer and a Director of
GelTex Pharmaceuticals, Inc., a biotechnology company, since 1993. From 1988 to
1993, he was President and Chief Executive Officer of Enzytech, Inc., a
biotechnology company, and from 1983 to 1988 he was President and Chief
Operating Officer of Biogen, Inc., also a biotechnology company. Mr. Skaletsky
serves on the Board of Directors of two biotechnology companies, Isis
Pharmaceuticals, Inc. and Microcide Pharmaceuticals, Inc.
39
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of our shares of common stock as of September 30, 2000 by
- each person or entity known by us to be a beneficial owner of more than 5%
of the outstanding shares of common stock,
- each of our Directors and nominees for Director,
- all of our current Executive Officers and Directors of the Company as a
group. Except as otherwise indicated, each stockholder has sole voting and
investment power with respect to the shares beneficially owned. Options to
purchase shares of our common stock that are exercisable within 60 days of
September 30, 2000 are deemed to be beneficially owned by the persons
holding these options for the purpose of computing percentage ownership of
that person, but are not treated as outstanding for the purposes of
computing any other person's ownership percentage.
Unless otherwise listed, the address of the following beneficial owners is
c/o ImmunoGen, Inc., 128 Sidney Street, Cambridge, Massachusetts 02139.
<TABLE>
<CAPTION>
PERCENT BENEFICIALLY
OWNED
-----------------------
SHARES BEFORE AFTER
BENEFICIALLY THE THE
BENEFICIAL OWNER OWNED(1) OFFERING(1) OFFERING
---------------- ------------ ----------- ---------
<S> <C> <C> <C>
Capital Ventures International(2) .......................... 2,475,185 6.7% 6.1%
One Capitol Place, P.O. Box 1787 GT
Grand Cayman, Cayman Islands, BWI
Mitchel Sayare, Ph.D.(3).................................... 805,445 2.3 2.1
Walter A. Blattler, Ph.D.(4)................................ 457,006 1.3 1.2
John M. Lambert, Ph.D.(5)................................... 258,203 * *
Pauline Jen Ryan(6)......................................... 10,000 * *
David W. Carter(7).......................................... 57,501 * *
Stuart F. Feiner(8)......................................... 16,667 * *
Michael R. Eisenson(9)...................................... 0 -- --
Mark Skaletsky.............................................. 0 -- --
All current executive officers and Directors as a group 1,604,822 4.5 4.0
(8 persons)...............................................
</TABLE>
------------------------
* Represents beneficial ownership of less than 1% of the common stock.
(1) Share ownership includes shares of common stock issuable upon exercise of
certain outstanding options and warrants as described in the footnotes
below.
(2) Consists of 2,475,185 shares of common stock that Capital Ventures
International, or CVI, may acquire upon the exercise of warrants to purchase
common stock. Our Restated Articles of Organization, as amended, and the
warrants held by CVI, the CVI Warrants, limit the right of CVI to exercise
the CVI Warrants such that the maximum number of shares of the common stock
which may at any time be deemed to be beneficially owned by CVI upon the
exercise of the CVI Warrants may not, together with any other shares of
common stock then owned by CVI, exceed 9.9% of the then issued and
outstanding shares of common stock.
40
<PAGE>
(3) Includes 603,945 shares of common stock which Dr. Sayare may acquire upon
the exercise of options within 60 days after September 30, 2000.
(4) Includes 373,945 shares of common stock which Dr. Blattler may acquire upon
the exercise of options within 60 days after September 30, 2000.
(5) Includes 226,912 shares of common stock which Dr. Lambert may acquire upon
the exercise of options within 60 days after September 30, 2000.
(6) Includes 10,000 shares of common stock which Ms. Ryan may acquire upon the
exercise of options within 60 days after September 30, 2000.
(7) Consists of 57,501 shares of common stock which Mr. Carter may acquire upon
the exercise of options within 60 days after September 30, 2000.
(8) Stuart F. Feiner is a Chairman of the general partner of North American
Partners Limited Partnership II, which owns 19 shares of common stock.
Mr. Feiner disclaims beneficial ownership of the shares of common stock held
by such partnership. Mr. Feiner individually did not own any shares of
common stock as of September 30, 2000. He is also named as direct owner of
non-qualified options to acquire 95,000 shares of common stock granted by us
in each of July 1992, July 1996 and July 1998. Pursuant to such option
grants, Mr. Feiner may directly acquire 70,001 shares of common stock within
60 days after September 30, 2000. However, Mr. Feiner disclaims certain
beneficial interest in the options and the underlying shares pursuant to an
arrangement made between Mr. Feiner and Inco Limited, whereby Mr. Feiner
assigned the options to acquire a total of 53,334 shares of common stock to
that entity.
(9) Michael R. Eisenson is President and Chief Executive Officer of Charlesbank
Capital Partners, LLC, the successor to Harvard Private Capital Group, Inc.
and the investment advisor to Aeneas Venture Corporation. Mr. Eisenson owns
no shares of common stock and disclaims beneficial ownership of the shares
owned by Aeneas. Pursuant to an agreement among us, Aeneas and
Mr. Eisenson, grants of stock options in connection with Mr. Eisenson's
service as a Director are granted directly to Aeneas. Pursuant to such
grants, Aeneas may acquire 70,001 shares of common stock within 60 days
after September 30, 2000.
41
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
Our authorized capital stock consists of 50,000,000 shares of common stock,
$.01 par value, and 5,000,000 shares of preferred stock, $.01 par value.
COMMON STOCK
As of September 30, 2000, there were 34,358,076 shares of our common stock
outstanding that were held of record by approximately 21,500 beneficial owners
of our stock. There will be 38,358,076 shares of our common stock outstanding
after giving effect to the sale of the shares of common stock in this offering,
assuming no exercise of the underwriters' over-allotment option and no exercise
of outstanding options or warrants.
The holders of our common stock are entitled to one vote per share on all
matters submitted to a vote of our stockholders. Subject to preferences that may
be applicable to any preferred stock outstanding at the time, the holders of
outstanding shares of our common stock are entitled to receive a pro rata share
of any dividends out of assets legally available as our board of directors may
from time to time determine. Upon liquidation, dissolution or our winding up,
holders of our common stock are entitled to share proportionally in all assets
remaining after payment of liabilities and the liquidation preference of any
then outstanding shares of preferred stock. Holders of common stock have no
preemptive or conversion rights or other subscription rights. There are no
redemption or sinking fund provisions applicable to the common stock. All
outstanding shares of common stock are fully paid and nonassessable.
PREFERRED STOCK
Pursuant to our restated and amended articles of organization, our board of
directors has the authority, without further action by the stockholders, to
issue up to 5,000,000 shares of preferred stock in one or more series. The board
can fix the rights, preferences, privileges and restrictions of the preferred
stock not yet designated, including dividend rights, conversion rights, voting
rights, terms of redemption, liquidation preferences, sinking fund terms and the
number of shares constituting any series or the designation of this series. The
issuance of preferred stock could adversely affect the voting power of holders
of common stock. The likelihood that holders of preferred stock will receive
preferential dividend payments and payments upon liquidation may have the effect
of delaying, deferring or preventing a change in our control, which could
depress the market price of our common stock. Currently, no shares of our
preferred stock are outstanding; we have no present plan to issue any shares of
preferred stock.
WARRANTS
Warrants to purchase 2,654,732 shares of our common stock, issued in
connection with certain private placements of our convertible debentures and our
preferred stock between March 1996 and July 1998, were outstanding as of
September 30, 2000. These warrants have exercise prices ranging from $1.94 to
$6.00 and expire from 2001 to 2003.
From July 1997 through March 2000, we issued warrants to BioChem Pharma to
purchase shares of our common stock equal to $11.1 million, the amount invested
in our subsidiary, ATI, by BioChem Pharma as part of a three-year research
collaboration. These warrants are exercisable at any time until and including
July 31, 2002, for a number of shares of our common stock determined by dividing
$11.1 million by the average market price of our common stock for the five
consecutive trading days preceding this exercise date, subject to certain
limitations, at an exercise price equal to such average market price.
42
<PAGE>
REGISTRATION RIGHTS OF CERTAIN HOLDERS
We originally registered the resale of approximately 3,877,000 shares of our
common stock in connection with a March 1996 sale of common stock warrants and
the October 1996 conversion of a convertible debenture into Series A Preferred
Stock and the subsequent conversion of the preferred stock into common stock. Of
the original number, 2,475,185 shares are currently available for sale under
this registration, upon the exercise of the outstanding warrants. We are no
longer required to maintain the effectiveness of the registration statement
covering these shares as they are freely tradable under federal securities laws
and regulations. An additional 229,548 shares of common stock issuable upon the
exercise of outstanding warrants are available for sale under two other
effective registration statements.
We granted registration rights to certain investors with respect to 533,841
shares of our common stock purchased in a private placement. These rights
entitle the holders to demand registrations, subject to certain conditions and
limitations.
We granted piggyback registration rights to SmithKline Beecham with respect
to 1,023,039 shares of our common stock purchased in a private placement,
subject to certain conditions and limitations. In an underwritten primary
offering of our common stock, SmithKline Beecham's piggyback rights may be cut
back if in the opinion of the managing underwriters no selling shareholder
shares should be included in the registration statement due to market factors.
SmithKline Beecham has agreed not to sell or otherwise dispose of its shares of
our common stock and not to exercise its registration rights for a period of 90
days following the date of this prospectus, subject to certain exceptions. See
"Underwriting."
We granted BioChem Pharma demand and piggyback registration rights with
respect to their warrant shares. The demand rights entitle BioChem Pharma to two
demand registrations in which we pay all of the registration expenses and one
demand registration in which BioChem Pharma pays its own share of registration
expenses. The piggyback rights require that we pay all registration expenses. In
an underwritten primary offering of our common stock, BioChem Pharma's piggyback
rights may be cut back if in the opinion of the managing underwriters the number
of shares of common stock requested by BioChem Pharma to be included in the
registration exceeds the number which can be sold in such offering without
adversely affecting the marketability of the offering.
We granted demand registration rights to Abgenix, Inc. with respect to
789,473 shares of our common stock purchased in a private placement. These
rights entitle Abgenix to three demand registrations in the future, subject to
certain conditions and limitations. These demand rights require that we pay all
of Abgenix's registration expenses.
Absent any contractual limitations, the holders of the above described
registration rights could cause a significant number of shares of our common
stock to be registered and sold in the public market. Such sales, or the
perception that these sales could occur, may have an adverse effect on the
market price for our common stock and could impair our ability to raise capital
through an offering of equity securities.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is ChaseMellon
Shareholder Services.
43
<PAGE>
UNDERWRITING
ImmunoGen and the underwriters named below have entered into an underwriting
agreement with respect to the shares being offered. Subject to certain
conditions each underwriter has severally agreed to purchase the number of
shares indicated in the following table at the public offering price less the
underwriting discounts and commissions set forth on the cover page of this
prospectus. SG Cowen Securities Corporation, Robertson Stephens, Inc., and
Adams, Harkness & Hill, Inc. are the representatives of the underwriters.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
------------ ---------
<S> <C>
SG Cowen Securities Corporation.............................
Robertson Stephens, Inc.....................................
Adams, Harkness & Hill, Inc.................................
---------
Total............................................... 4,000,000
=========
</TABLE>
The underwriting agreement provides that the obligations of the underwriters
are conditional and may be terminated at their discretion based on their
assessment of the state of the financial markets. The obligations of the
underwriters may also be terminated upon the occurrence of other events
specified in the underwriting agreement. The underwriters are severally
committed to purchase all of the common stock being offered by us if any shares
are purchased, other than those covered by the over-allotment option described
below.
The underwriters propose to offer the common stock directly to the public at
the public offering price set forth on the cover page of this prospectus. The
underwriters may offer the common stock to securities dealers at that price less
a concession not in excess of $ per share. Securities dealers may
reallow a concession not in excess of $ per share to other dealers.
After the shares of the common stock are released for sale to the public, the
underwriters may vary the offering price and other selling terms from time to
time.
We have granted to the underwriters an option to purchase up to 600,000
additional shares of common stock at the public offering price set forth on the
cover of this prospectus to cover over-allotments, if any. The option is
exercisable for a period of 30 days. If the underwriters exercise their
over-allotment option, the underwriters have severally agreed to purchase shares
in approximately the same proportion as shown in the table above.
The following table shows the per share and total public offering price, the
underwriting discount to be paid by us to the underwriters and the proceeds from
the sale of shares to the underwriters before our expenses. This information is
presented assuming either no exercise or full exercise by the underwriters of
their over-allotment option.
<TABLE>
<CAPTION>
WITHOUT WITH
PER SHARE OPTION OPTION
--------- -------- --------
<S> <C> <C> <C>
Public offering price....................................
Underwriting discount....................................
Proceeds, before expenses, to ImmunoGen..................
</TABLE>
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act of 1933, and to contribute to
payments that the underwriters may be required to make in respect of those
liabilities.
Our directors, executive officers and SmithKline Beecham holding an
aggregate of 315,852 shares of our common stock and options to purchase
1,288,970 shares of our common stock, have agreed that for a period of 90 days
following the date of this prospectus, without the prior written consent of SG
44
<PAGE>
Cowen Securities Corporation, not to directly or indirectly, offer, sell,
assign, transfer, pledge, contract to sell, or otherwise dispose of, other than
by operation of law, any shares of common stock or any securities convertible
into or exercisable or exchangeable for common stock, including, without
limitation, common stock which may be deemed to be beneficially owned in
accordance with rules and regulations promulgated under the Securities Act.
These restrictions do not apply to (a) the transfer of any shares of common
stock pursuant to a bona fide gift, (b) the transfer, if the holder is an
individual, of any shares of common stock to his or her immediate family or a
trust, the beneficiaries of which are exclusively the holder or a member of his
or her immediate family, (c) the transfer of any shares of common stock to a
charitable organization, (d) the transfer, if the holder is a partnership or a
corporation, to limited partners or shareholders of the undersigned as a
distribution, or (e) the transfer of any shares of securities to any company,
corporation, business or entity controlled by, controlling, or under common
control with the undersigned; provided, however, that in each case the
transferee will be required to agree in writing to be bound by similar lock-up
terms as a condition of any such transfer. SG Cowen Securities Corporation may,
in its sole discretion, and at any time without notice, release all or a portion
of the shares subject to lock-up agreements.
The underwriters may engage in over-allotment, stabilizing transactions,
covering transactions, penalty bids and passive market making in accordance with
Regulation M under the Securities Exchange Act of 1934. Over-allotment involves
syndicate sales in excess of the offering size, which creates a syndicate short
position. Stabilizing transactions permit bids to purchase the underlying
security so long as the stabilizing bids do not exceed a specified maximum.
Syndicate covering transactions involve purchases of the common stock in the
open market after the distribution has been completed in order to cover
syndicate short positions. Penalty bids permit the representatives to reclaim a
selling concession from a syndicate member when the common stock originally sold
by such syndicate member is purchased in a syndicate covering transaction to
cover syndicate short positions. In passive market making, market makers in the
common stock who are underwriters or prospective underwriters may, subject to
certain limitations, make bids for or purchases of the common stock until the
time, if any, at which a stabilizing bid is made. These stabilizing
transactions, syndicate covering transactions and penalty bids may cause the
price of the common stock to be higher than it would otherwise be in the absence
of these transactions. These transactions may be effected on the Nasdaq National
Market or otherwise and, if commenced, may be discontinued at any time.
The underwriters have advised us that they do not intend to confirm sales in
excess of 5% of the common stock offered hereby to any account over which they
exercise discretionary authority.
We estimate that our out of pocket expenses for this offering will be
approximately $280,000.
45
<PAGE>
LEGAL MATTERS
The validity of the shares of common stock offered hereby is being passed
upon for us by Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., Boston,
Massachusetts and for the underwriters by Shearman & Sterling, New York, New
York. Shearman & Sterling will rely upon the opinion of Mintz, Levin, Cohn,
Ferris, Glovsky and Popeo, P.C. with respect to certain matters governed by the
law of Massachusetts.
EXPERTS
Our consolidated financial statements as of June 30, 2000 and 1999 and for
each of the three years in the period ended June 30, 2000 included and
incorporated in this prospectus have been so included and incorporated in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants,
given on their authority as experts in auditing and accounting.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The Securities and Exchange Commission allows us to "incorporate by
reference" the information we file with them, which means that we can disclose
important information to you by referring you to those documents that we have
previously filed with the Commission or documents that we will file with the
Commission in the future. The information incorporated by reference is
considered to be part of this prospectus, and later information that we file
with the Commission will automatically update and supersede this information. We
incorporate by reference the documents listed below, and any future filings made
with the Commission under Sections 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934, until we close this offering, and the over-allotment
option expires or is exercised. The documents we incorporate by reference are:
(a) our Annual Report on Form 10-K for the fiscal year ended June 30, 2000;
(b) our Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 2000;
(c) our proxy materials on Schedule 14A as filed with the Commission on
October 12, 2000;
(d) our Current Reports on Form 8-K filed with the Commission on
September 11, 2000 and October 10, 2000 and on Form 8-K/A filed with the
Commission on October 10, 2000; and
(e) the description of our capital stock contained in our registration
statement on Form 8-A under the Securities Exchange Act of 1934 (File
No. 0-17999), including amendments or reports filed for the purpose of updating
such description.
You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address and number: ImmunoGen, Inc., Attention:
Investor Relations, 128 Sidney Street, Cambridge, Massachusetts 02139; telephone
number (617) 995-2500.
To the extent that any statements contained in a document incorporated by
reference are modified or superseded by any statements contained in this
prospectus, such statements shall not be deemed incorporated in this prospectus
except as so modified or superseded.
All documents subsequently filed by us pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act and prior to the termination of this offering are
incorporated by reference and become a part of this prospectus from the date
such documents are filed. Any statement contained in this prospectus or in a
document incorporated by reference is modified or superseded for purposes of
this prospectus to the extent that a statement contained in any subsequently
filed document modifies or supersedes such statement.
46
<PAGE>
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission. You may read and copy
any materials we file with the Commission at the Commission's public reference
room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the
Commission at 1-800-SEC-0330 for more information on its public reference rooms.
The Commission also maintains an Internet Website at http://www.sec.gov that
contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the Commission.
We have filed with the Commission a registration statement (which contains
this prospectus) on Form S-3 under the Securities Act of 1933. The registration
statement relates to the common stock offered by us. This prospectus does not
contain all of the information set forth in the registration statement and the
exhibits and schedules to the registration statement. Please refer to the
registration statement and its exhibits and schedules for further information
with respect to us and our common stock. Statements contained in this prospectus
as to the contents of any contract or other document are not necessarily
complete and, in each instance, we refer you to the copy of that contract or
document filed as an exhibit to the registration statement. You may read and
obtain a copy of the registration statement and its exhibits and schedules from
the Commission, as described in the preceding paragraph.
47
<PAGE>
IMMUNOGEN, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Annual Financial Statements:
Report of Independent Accountants....................................................... F-2
Consolidated Balance Sheets as of June 30, 2000 and 1999................................ F-3
Consolidated Statements of Operations for the years ended June 30, 2000, 1999 and
1998.................................................................................. F-4
Consolidated Statements of Stockholders' Equity for the years ended June 30, 2000, 1999
and 1998.............................................................................. F-5
Consolidated Statements of Cash Flows for the years ended June 30, 2000, 1999 and
1998.................................................................................. F-6
Notes to Consolidated Financial Statements.............................................. F-7
Interim Financial Statements (unaudited):
Condensed Consolidated Balance Sheets as of September 30, 2000 and June 30, 2000........ F-23
Condensed Consolidated Statements of Operations for the three months ended September 30,
2000 and 1999......................................................................... F-24
Condensed Consolidated Statements of Stockholders' Equity for the year ended June 30,
2000 and the three months ended September 30, 2000.................................... F-25
Condensed Consolidated Statements of Cash Flows for the three months ended September 30,
2000 and 1999......................................................................... F-26
Notes to Condensed Consolidated Financial Statements.................................... F-27
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of ImmunoGen, Inc.:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, stockholders' equity and cash flows
present fairly, in all material respects, the financial position of
ImmunoGen, Inc. (the "Company") at June 30, 2000 and 1999, and the results of
its operations and its cash flows for each of the three years in the period
ended June 30, 2000, in conformity with accounting principles generally accepted
in the United States of America. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States of America, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
July 28, 2000,
except for Note 14 as to which the date is September 7, 2000
F-2
<PAGE>
IMMUNOGEN, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
-----------------------------
2000 1999
------------- -------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 1,408,908 $ 4,225,580
Marketable securities..................................... 15,920,484 --
Due from related party.................................... 47,352 910,108
Current portion of note receivable........................ -- 350,000
Prepaid and other current assets.......................... 415,441 57,915
------------- -------------
Total current assets.............................. 17,792,185 5,543,603
------------- -------------
Property and equipment, net of accumulated depreciation..... 1,508,396 1,583,350
Other assets................................................ 43,700 43,700
------------- -------------
Total assets...................................... $ 19,344,281 $ 7,170,653
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.......................................... $ 891,419 $ 869,996
Accrued compensation...................................... 204,210 282,390
Other current accrued liabilities......................... 987,475 528,969
Current portion of deferred lease and capital lease
obligations............................................. 60,083 91,911
Current portion of deferred revenue....................... 325,000 --
------------- -------------
Total current liabilities......................... 2,468,187 1,773,266
------------- -------------
Capital lease obligations................................... 8,137 68,220
Deferred revenue............................................ 1,500,000 --
------------- -------------
Total liabilities................................. 3,976,324 1,841,486
------------- -------------
Commitments and contingencies (Note 12)
Stockholders' equity:
Preferred stock; $.01 par value; authorized 5,000,000 as
of June 30, 2000 and 1999:
Convertible preferred stock, Series E, $.01 par value;
issued and outstanding 0 and 2,400 shares as of
June 30, 2000 and 1999, respectively (liquidation
preference--stated value)............................. -- 24
Common stock, $.01 par value; authorized 50,000,000 shares
as of June 30, 2000 and June 30, 1999, respectively;
issued and outstanding 33,050,659 and 25,668,797 shares
as of June 30, 2000 and June 30, 1999, respectively..... 330,507 256,687
Additional paid-in capital................................ 168,682,991 158,790,821
Accumulated deficit....................................... (153,955,925) (153,718,365)
Accumulated other comprehensive income.................... 310,384 --
------------- -------------
Total stockholders' equity........................ 15,367,957 5,329,167
------------- -------------
Total liabilities and stockholders' equity........ $ 19,344,281 $ 7,170,653
============= =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
IMMUNOGEN, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
---------------------------------------
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Revenue earned under collaboration agreements....... $11,175,000 $ 3,000,000 --
Development fees.................................... 4,800 400,105 $ 304,723
Licensing........................................... 705 1,158 2,454
----------- ----------- -----------
Total revenues.................................. 11,180,505 3,401,263 307,177
----------- ----------- -----------
Expenses:
Research and development............................ 8,878,105 6,097,869 5,744,572
Purchase of in-process research and development
technology........................................ -- -- 871,930
General and administrative.......................... 3,063,403 1,785,751 1,740,347
----------- ----------- -----------
Total expenses.................................. 11,941,508 7,883,620 8,356,849
----------- ----------- -----------
Net loss from operations........................ (761,003) (4,482,357) (8,049,672)
Interest income....................................... 378,522 250,995 232,937
Gain on the sale of assets............................ 19,538 4,200 25,629
Other income.......................................... 49,513 51,042 20,645
----------- ----------- -----------
Net loss before minority interest..................... (313,430) (4,176,120) (7,770,461)
----------- ----------- -----------
Minority interest in net loss of consolidated
subsidiary........................................ 75,870 101,160 159,524
----------- ----------- -----------
Net loss........................................ (237,560) (4,074,960) (7,610,937)
----------- ----------- -----------
Non-cash dividends on convertible preferred stock... -- (917,583) (605,479)
----------- ----------- -----------
Net loss to common stockholders................. $ (237,560) $(4,992,543) $(8,216,416)
=========== =========== ===========
Basic and diluted loss per common share............... $ (0.01) $ (0.20) $ (0.34)
=========== =========== ===========
Shares used in computing basic and diluted loss per
share amounts....................................... 29,520,576 25,525,061 24,210,340
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
IMMUNOGEN, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (NOTE 11)
<TABLE>
<CAPTION>
PREFERRED ACCUMULATED
COMMON STOCK STOCK ADDITIONAL OTHER
--------------------- ------------------- PAID-IN ACCUMULATED COMPREHENSIVE
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT INCOME
---------- -------- -------- -------- ------------ ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1997........... 21,779,767 $217,797 2,800 $28 $144,753,538 $(140,509,406) $ --
Stock options exercised............ 114,302 1,143 -- -- 101,728 -- --
Issuance of Common Stock in
exchange for shares of
subsidiary....................... 475,425 4,754 -- -- 867,176 -- --
Conversion of Series A Convertible
Preferred Stock into Common
Stock............................ 1,347,491 13,475 (1,100) (11) 119,947 -- --
Conversion of Series C Convertible
Preferred Stock into Common
Stock............................ 701,180 7,012 (700) (7) 25,481 -- --
Conversion of Series D Convertible
Preferred Stock into Common
Stock............................ 1,001,387 10,014 (1,000) (10) 16,195 -- --
Issuance of Series E Convertible
Preferred Stock, net of financing
costs............................ -- -- 1,200 12 1,448,376 -- --
Value of Common Stock purchase
warrants issued.................. -- -- -- -- 580,056 -- --
Value ascribed to ImmunoGen
warrants issued to BioChem,
net of financing costs........... -- -- -- -- 4,870,088 -- --
Non-cash dividends on convertible
preferred stock.................. -- -- -- -- -- (605,479) --
Net loss for the year ended June
30, 1998......................... -- -- -- -- -- (7,610,937) --
---------- -------- ------ --- ------------ ------------- --------
Balance at June 30, 1998........... 25,419,552 254,195 1,200 12 152,782,585 (148,725,822) --
Stock options exercised............ 174,245 1,742 -- -- 313,545 -- --
Issuance of Series E Convertible
Preferred Stock, net of financing
costs............................ -- -- 1,200 12 1,495,193 -- --
Issuance of Common Stock in
exchange for Series E Preferred
Stock placement services......... 75,000 750 -- -- (750) -- --
Value of Common Stock purchase
warrants issued.................. -- -- -- -- 917,583 -- --
Compensation for stock option
vesting acceleration for retired
director......................... -- -- -- -- 13,275 -- --
Value ascribed to ImmunoGen
warrants issued to BioChem,
net of financing costs........... -- -- -- -- 3,269,390 -- --
Non-cash dividends on convertible
preferred stock.................. -- -- -- -- -- (917,583) --
Net loss for the year ended June
30, 1999......................... -- -- -- -- -- (4,074,960) --
---------- -------- ------ --- ------------ ------------- --------
Balance at June 30, 1999........... 25,668,797 256,687 2,400 24 158,790,821 (153,718,365) --
Unrealized gain on marketable
securities....................... -- -- -- -- -- -- 310,384
Net loss for the year ended June
30, 2000......................... -- -- -- -- -- (237,560) --
Comprehensive Income............... -- -- -- -- -- -- --
Stock options exercised............ 131,567 1,316 -- -- 219,192 -- --
Exercise of put option............. 1,023,039 10,231 -- -- 2,489,769 -- --
Warrants exercised................. 3,403,728 34,037 -- -- 4,408,575 -- --
Conversion of Series E Convertible
Preferred Stock into Common
Stock............................ 2,823,528 28,236 (2,400) (24) (28,212) -- --
Compensation for stock option
vesting acceleration for
terminated officer............... -- -- -- -- 349,716 -- --
Value ascribed to ImmunoGen
warrants issued to Biochem,
net of financing costs........... -- -- -- -- 2,453,130 -- --
---------- -------- ------ --- ------------ ------------- --------
Balance at June 30, 2000........... 33,050,659 $330,507 -- $-- $168,682,991 $(153,955,925) $310,384
========== ======== ====== === ============ ============= ========
<CAPTION>
COMPREHENSIVE TOTAL
INCOME STOCKHOLDERS'
(LOSS) EQUITY
-------------- -------------
<S> <C> <C>
Balance at June 30, 1997........... $ -- $ 4,461,957
Stock options exercised............ -- 102,871
Issuance of Common Stock in
exchange for shares of
subsidiary....................... -- 871,930
Conversion of Series A Convertible
Preferred Stock into Common
Stock............................ -- 133,411
Conversion of Series C Convertible
Preferred Stock into Common
Stock............................ -- 32,486
Conversion of Series D Convertible
Preferred Stock into Common
Stock............................ -- 26,199
Issuance of Series E Convertible
Preferred Stock, net of financing
costs............................ -- 1,448,388
Value of Common Stock purchase
warrants issued.................. -- 580,056
Value ascribed to ImmunoGen
warrants issued to BioChem,
net of financing costs........... -- 4,870,088
Non-cash dividends on convertible
preferred stock.................. -- (605,479)
Net loss for the year ended June
30, 1998......................... (7,610,937) (7,610,937)
---------- -----------
Balance at June 30, 1998........... -- 4,310,970
Stock options exercised............ -- 315,287
Issuance of Series E Convertible
Preferred Stock, net of financing
costs............................ -- 1,495,205
Issuance of Common Stock in
exchange for Series E Preferred
Stock placement services......... -- --
Value of Common Stock purchase
warrants issued.................. -- 917,583
Compensation for stock option
vesting acceleration for retired
director......................... -- 13,275
Value ascribed to ImmunoGen
warrants issued to BioChem,
net of financing costs........... -- 3,269,390
Non-cash dividends on convertible
preferred stock.................. -- (917,583)
Net loss for the year ended June
30, 1999......................... (4,074,960) (4,074,960)
---------- -----------
Balance at June 30, 1999........... -- 5,329,167
Unrealized gain on marketable
securities....................... 310,384 310,384
Net loss for the year ended June
30, 2000......................... (237,560) (237,560)
----------
Comprehensive Income............... 72,824 --
==========
Stock options exercised............ -- 220,508
Exercise of put option............. -- 2,500,000
Warrants exercised................. -- 4,442,612
Conversion of Series E Convertible
Preferred Stock into Common
Stock............................ -- --
Compensation for stock option
vesting acceleration for
terminated officer............... -- 349,716
Value ascribed to ImmunoGen
warrants issued to Biochem,
net of financing costs........... -- 2,453,130
---------- -----------
Balance at June 30, 2000........... $ -- $15,367,957
========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
IMMUNOGEN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
---------------------------------------
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss to common stockholders......................... $ (237,560) $(4,992,543) $(8,216,416)
Adjustments to reconcile net loss to net cash used for
operating activities:
Depreciation and amortization......................... 498,619 555,357 1,053,441
Stock issued for in-process research and development
technology.......................................... -- -- 871,930
Loss (gain) on sale of property and equipment......... (19,539) (4,200) (25,629)
Interest earned on note receivable.................... -- (77,362) (103,722)
Compensation for stock option vesting acceleration.... 349,716 13,275 --
Non-cash dividend on convertible preferred stock...... -- 917,583 605,479
Minority interest in net loss of consolidated
subsidiary.......................................... (75,870) (101,160) (159,524)
Amortization of deferred lease........................ (35,172) (52,760) (60,664)
Changes in operating assets and liabilities:
Due from related party................................ 19,756 5,365 (72,473)
Prepaid and other current assets...................... (357,526) (6,555) 197,131
Accounts payable...................................... 21,423 170,578 86,859
Accrued compensation.................................. (78,180) 57,264 (23,346)
Other current accrued liabilities..................... 458,506 -- --
Deferred revenue...................................... 1,825,000 (24,277) (121,319)
----------- ----------- -----------
Net cash (used for) provided by operating
activities........................................ 2,369,173 (3,539,435) (5,968,253)
----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures.................................. (423,921) (120,223) (27,480)
Payments received on note receivable.................. 350,000 960,000 330,000
Purchase of marketable securities..................... (20,521,137) -- --
Proceeds from maturities of marketable securities..... 4,950,347 -- --
Prepaid interest from investments..................... (39,310) -- --
Proceeds from sale of property and equipment.......... 19,795 4,200 37,705
----------- ----------- -----------
Net cash (used for) provided by investing
activities.......................................... (15,664,226) 843,977 340,225
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from exercise of put option.................. 2,500,000 -- --
Proceeds from stock warrants exercised................ 4,442,612 -- --
Proceeds from convertible preferred stock, net........ -- 1,495,205 1,429,136
Proceeds from issuance of subsidiary convertible
preferred stock, net................................ 3,372,000 3,370,550 4,205,865
Stock issuances, net.................................. 220,508 315,287 102,870
Principal payments on capital lease obligations....... (56,739) (1,829) (37,068)
----------- ----------- -----------
Net cash provided by financing activities............. 10,478,381 5,179,213 5,700,803
----------- ----------- -----------
Net change in cash and cash equivalents..................... (2,816,672) 2,483,755 72,775
----------- ----------- -----------
Cash and cash equivalents, beginning balance................ 4,225,580 1,741,825 1,669,050
----------- ----------- -----------
Cash and cash equivalents, ending balance................... $ 1,408,908 $ 4,225,580 $ 1,741,825
=========== =========== ===========
Supplemental disclosure of noncash financing activities:
Capital lease obligations assumed on acquired equipment..... $ -- $ 126,788 $ --
=========== =========== ===========
Due from related party for quarterly investment payment..... $ -- $ 843,000 $ 843,000
=========== =========== ===========
Conversion of Series A Preferred Stock to Common Stock...... $ -- $ -- $ 2,089,828
=========== =========== ===========
Conversion of Series C Preferred Stock to Common Stock...... $ -- $ -- $ 1,101,341
=========== =========== ===========
Conversion of Series D Preferred Stock to Common Stock...... $ -- $ -- $ 1,287,102
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
IMMUNOGEN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND PLAN OF OPERATION:
The Company anticipates that its existing capital resources will enable it
to maintain its current and planned operations at least through fiscal year
2001. ImmunoGen, Inc. ("ImmunoGen" or the "Company") was incorporated in
Massachusetts in 1981 to develop, produce and market commercial anti-cancer and
other pharmaceuticals based on molecular immunology. The Company continues to
research and develop its various products and technologies, and does not expect
to derive revenue from commercially approved product sales within the
foreseeable future. It is anticipated that the Company's existing capital
resources, enhanced by collaborative agreement funding, will enable current and
planned operations to be maintained through at least the next twelve-month
period. However, if the Company is unable to achieve subsequent milestones under
its collaborative agreements, the Company may be required to pursue additional
strategic partners, secure alternative financing arrangements and/or defer or
limit some or all of its research, development and/or clinical projects.
The Company is subject to risks common to companies in the biotechnology
industry including, but not limited to, the safety, efficacy and successful
development of product candidates, fluctuations in operating results, protection
of proprietary technology, limited sales and marketing experience, limited
manufacturing capacity, risk of product liability, compliance with government
regulations and dependence on key personnel and collaborative partners.
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary, ImmunoGen Securities Corp. (established in
December 1989), and Apoptosis Technology, Inc. ("ATI") (established in
January 1993). All intercompany transactions and balances have been eliminated.
REVENUE RECOGNITION
The Company recognizes revenue on milestone based collaboration agreements
when achievement of the milestone has occurred and collection is probable.
Deferred revenues represent milestone payments received from collaborators where
the performance obligations related to the milestone have not been completed.
Revenues recognized are based on the collaboration agreement milestone value and
the relationship of costs incurred to the Company's estimates of total cost
expected to complete that milestone. The Company's estimates of cost include all
costs expected to be incurred to fulfill performance obligations related to the
milestone.
Development revenues of approximately $4,800, $400,000 and $305,000 in
fiscal years 2000, 1999 and 1998, respectively, represent income earned, on a
cost reimbursement basis, under the Small Business Innovation Research Program
of the National Institute of Health and amounts received pursuant to licensing
agreements of the Company and ATI.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-7
<PAGE>
IMMUNOGEN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(CONTINUED)
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred.
INCOME TAXES
The Company uses the liability method whereby the deferred tax liabilities
and assets are recognized based on temporary differences between the financial
statement and tax basis of assets and liabilities using current statutory tax
rates. A valuation allowance against net deferred tax assets is recorded if,
based on the available evidence, it is more likely than not that some or all of
the deferred tax assets will not be realized.
Management evaluates on a quarterly basis the recoverability of the deferred
tax assets and the level of the valuation allowance. At such time as it is more
likely than not that deferred tax assets are realizable, the valuation allowance
will be appropriately reduced.
FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
The Company has no significant off balance sheet concentration of credit
risk such as foreign exchange contracts, option contracts or other foreign
hedging arrangements. The Company maintains the majority of its cash balances
with financial institutions. Financial instruments that potentially subject the
Company to concentrations of credit risk primarily consist of the cash and cash
equivalents and short term marketable securities. The Company places its cash,
cash equivalents and marketable securities with high credit quality financial
institutions.
CASH AND CASH EQUIVALENTS
The Company considers all investments purchased with maturity dates of three
months or less from the date of acquisition to be cash equivalents. Cash and
cash equivalents include, at cost plus accrued interest which approximates
market value, $1,194,000 and $3,910,000 of money market funds and repurchase
agreements at June 30, 2000 and 1999, respectively.
MARKETABLE SECURITIES
In accordance with the Company's investment policy, surplus cash is invested
in investment-grade corporate and U.S. Government debt securities typically with
maturity dates of less than one year. The Company determines the appropriate
classification of marketable securities at the time of purchase and reevaluates
such designation as of each balance sheet date. Marketable securities which meet
the criteria for classification as available-for-sale are carried at fair value
based on quoted market prices. Unrealized gains and losses are reported net, as
comprehensive income, within shareholders' equity. The cost of debt securities
is adjusted for amortization of premiums and accretion of discounts to maturity
with all amortization/accretion included in interest income.
F-8
<PAGE>
IMMUNOGEN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. The Company provides for
depreciation based upon expected useful lives using the straight-line method
over the following estimated useful lives:
<TABLE>
<S> <C>
Machinery and equipment.......... 3-5 years
Computer hardware and software... 3-5 years
Furniture and fixtures........... 5 years
Leasehold improvements........... Shorter of lease term or estimated useful life
</TABLE>
Maintenance and repairs are charged to expense as incurred. Upon retirement
or sale, the cost of disposed assets and the related accumulated depreciation
are removed from the accounts and any resulting gain or loss is credited or
charged to non-operating income. Gains recorded under sale/ leaseback
arrangements are deferred and amortized to operations over the life of the
lease.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company periodically evaluates the potential impairment of its
long-lived assets whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. At the occurrence of a
certain event or change in circumstances, the Company evaluates the potential
impairment of an asset based on estimated future undiscounted cash flows. In the
event impairment exists, the Company will measure the amount of such impairment
based on the present value of estimated future cash flows using a discount rate
commensurate with the risks involved. Based on management's assessment as of
June 30, 2000, the Company has determined that no impairment of long-lived
assets exists.
DEBT AND EQUITY INSTRUMENTS ISSUED WITH PROVISIONS FOR CONVERSION INTO COMMON
STOCK AT A DISCOUNT TO THE MARKET PRICE OF COMMON STOCK
The value of discounts inherent in convertible instruments issued with
provisions for conversion into Common Stock at a discount to the market price of
Common Stock or the value of any warrants issued in connection with those
instruments, is calculated as of the date of issuance of the convertible
securities as either dividends to preferred shareholders or as interest to
debtholders. The calculated value of the discount is amortized over the period
in which the discount is earned. In certain instances, the number and/or
exercise prices of warrants to be issued are tied to the market price of the
Common Stock at a future date (the "future price"). Therefore, the number of
warrants to be issued and/or the exercise price of those warrants is not readily
determinable at the date of issuance, when the value is required to be
calculated. In those instances, for warrant valuation purposes, the Company
assumes that the future price is equal to the quoted market price of the Common
Stock on the date of issuance. Accordingly, upon conversion, actual numbers
and/or prices may differ from original estimates.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, The Financial Accounting Standards Board issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities". The effective
date of this statement was deferred to fiscal years beginning after June 15,
2000. This statement requires the recognition of all derivative instruments as
either assets or liabilities in the statement of financial position and the
measurement of
F-9
<PAGE>
IMMUNOGEN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(CONTINUED)
those instruments at fair value. The Company does not expect the adoption of
this statement to have a material impact on its financial statements.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin 101 ("SAB 101"), which addresses accounting policies
to be applied in the recognition, presentation and disclosure of revenues from
contract partnerships, in financial statements filed with the SEC. The net
effect of SAB 101, when applicable could defer revenue recognition for some
milestone payments previously received into future accounting periods. On
June 26, 2000, the SEC deferred the implementation of SAB 101 from the second
calendar quarter of 2000 until no later than the fourth calendar quarter of
2000, in order to provide companies with additional time to determine the effect
that a change in accounting policy under SAB 101 will have on their revenue
recognition practices. The implementation of SAB 101 will require companies to
report any changes in accounting principle at the time of implementation in
accordance with Accounting Principles Board Opinion No. 20, "Accounting
Changes". The implementation of SAB 101 could have a material effect on the
reported financial results for the year ended June 30, 2001.
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation--an interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44
clarifies the application of APB Opinion No. 25 and among other issues clarifies
the following: the definition of an employee for purposes of applying APB
Opinion No. 25; the criteria for determining whether a plan qualifies as a
noncompensatory plan; the accounting consequence of various modifications to the
terms of previously fixed stock options or awards; and the accounting for an
exchange of stock compensation awards in a business combination. FIN 44 is
effective July 1, 2000, but certain conclusions in FIN 44 cover specific events
that occurred after either December 15, 1998 or January 12, 2000. The Company
does not expect the application of FIN 44 to have a material impact on the
Company's financial position or results of operations.
3. AGREEMENTS:
SMITHKLINE BEECHAM LICENSING AND STOCK PURCHASE AGREEMENTS
In February 1999, the Company entered into an exclusive license agreement
with SB to develop and commercialize ImmunoGen's lead tumor activated prodrug,
("TAP") huC242-DM1/SB-408075. Under the terms of the agreement, the Company
could receive more than $40.0 million, subject to the achievement by the Company
of certain development milestones. The Company is also entitled to receive
royalty payments on future product sales, if and when they commence. Finally, at
ImmunoGen's option, SB will purchase up to $5.0 million of ImmunoGen Common
Stock over the next two years, subject to certain conditions. Through June 30,
2000, SB had purchased $2.5 million worth of ImmunoGen Common Stock.
The SB Agreement is expected to provide the Company with sufficient cash
funding to carry out its responsibilities in developing huC242-DM1/SB-408075. To
that end, the Company will be responsible for the product's initial assessment
in humans, which began in December 1999. All costs subsequent to the initial
assessment will be the responsibility of SB.
As of June 30, 1999, the first two milestone payments totaling $3.0 million
had been received and recorded as collaboration revenue. Pursuant to the SB
Agreement, the payments represented non-refundable, unrestricted milestones
where no future obligation to perform exists. As of June 30,
F-10
<PAGE>
IMMUNOGEN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. AGREEMENTS: (CONTINUED)
2000, the Company received an additional two milestone payments totaling
$6.5 million which were recorded as collaboration revenue, with the exception of
$325,000 of the second payment recorded as deferred revenue until such time as
the remaining ongoing financial commitment associated with the milestone is
satisfied.
IMMUNOGEN/DANA-FARBER CANCER INSTITUTE
The Company had a long-standing research and license agreement with
Dana-Farber Cancer Institute, Inc. ("Dana-Farber"), a Massachusetts
not-for-profit corporation. As part of the research and licensing agreement, the
Company agreed to fund certain research and development projects conducted by
Dana-Farber in relation to the development and eventual commercialization of
certain biologicals to be used in the treatment of certain forms of cancer. No
funding of such projects occurred in fiscal 1998, 1999, or 2000 and none is
anticipated in the foreseeable future. To the extent that any invention develops
at Dana-Farber, which derived its principal support and prior funding from the
Company, the Company has the exclusive right to use such invention. Also as part
of the arrangement, the Company is required to pay to Dana-Farber, if and when
product sales commence, certain royalties based on a formula stipulated in the
agreement.
ATI/DANA-FARBER AGREEMENTS
ATI was established as a joint venture between ImmunoGen and Dana-Farber to
develop therapeutics based on apoptosis technology developed at Dana-Farber. In
January 1993, the Company purchased 7,000 shares of Class A Preferred Stock of
ATI. The Class A Preferred Stock is voting stock and carries a liquidation
preference over the common stock of ATI. In addition to previous investments in
ATI, ImmunoGen was committed to obtain or furnish another $3.0 million in equity
for ATI on such terms and conditions as were mutually agreed to by ATI and the
providers of such additional equity. As of June 30, 1997, amounts owed by ATI to
ImmunoGen approximated $14.2 million. In July 1997, this balance due ImmunoGen
was converted into shares of ATI common stock, thereby satisfying the agreement
to provide an additional $3.0 million in equity and increasing ImmunoGen's
majority ownership from approximately 72% to approximately 95%.
Under the terms of a stock purchase agreement entered into among the
Company, ATI, Dana-Farber and a founding researcher of ATI, if ATI had not
concluded a public offering of its stock for at least $5.0 million prior to
January 11, 1998, Dana-Farber and the individual stockholder each could require
the Company to purchase (the "put option"), or the Company could require such
stockholders to sell (the "call option"), their shares of ATI common stock at a
predetermined price through January 11, 1999. At the Company's discretion, the
options were exercisable through cash or by the delivery of shares of Common
Stock. In January 1998, the individual stockholder exercised his put option for
500,000 shares of ATI common stock, par value $0.00002 per share, for an
aggregate of $871,930. The value of the Common Stock issued was determined by
the terms of the put agreement and subject to the closing price of the Common
Stock on the date of the exercise of the put option. The Company elected to
issue its Common Stock in lieu of a cash payment and, in March 1998, 475,425
shares of Common Stock were issued to the individual stockholder, thereby
increasing the Company's ownership of ATI from approximately 95% to
approximately 97%. The transaction was accounted for as a step acquisition of a
minority interest in a subsidiary. The incremental 1.5% ATI ownership interest
received by the Company is based upon in-process ATI research and development
F-11
<PAGE>
IMMUNOGEN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. AGREEMENTS: (CONTINUED)
technology and, therefore, is not considered a substantiated intangible asset.
Accordingly, the cost of the acquisition, $871,930, or ($0.03) per common share
was charged to operations in 1998.
GENENTECH LICENSING AGREEMENT
In May 2000, the Company executed two separate licensing agreements with
Genentech, Inc. of South San Francisco, California. The first agreement grants
an exclusive license to Genentech for ImmunoGen's maytansinoid TAP technology
for use with antibodies such as Herceptin-Registered Trademark-. Under the terms
of the agreement, Genentech will receive exclusive worldwide rights to
commercialize anti-HER2 targeting products using ImmunoGen's maytansinoid TAP
platform. Genentech will be responsible for manufacturing, product development
and marketing of any products resulting from the agreement; ImmunoGen will be
reimbursed for any preclinical and clinical materials that it makes under the
agreement. ImmunoGen received and recorded as revenue a $2.0 million
non-refundable payment for execution of the agreement for which no further
performance is required. In addition to royalties on net sales, the terms of the
agreement include certain other payments based on Genentech's achievement of
milestones, assuming all benchmarks are met, for potentially up to
$40.0 million.
GENENTECH HEADS OF AGREEMENT
In addition to the Herceptin-Registered Trademark- agreement described
above, the Company announced in May 2000 that it has entered into an additional
agreement with Genentech. This second collaboration provides Genentech with
broad access to ImmunoGen's maytansinoid TAP technology for use with Genentech's
other proprietary antibodies. The multi-year agreement provides Genentech with a
license to utilize ImmunoGen's maytansinoid TAP platform in its antibody product
research efforts and an option to obtain product licenses for a limited number
of antigen targets over the agreement's five-year term. Under this agreement,
the Company received and recorded as revenue a non-refundable technology access
fee of $3.0 million in May 2000. This agreement also provides for certain other
payments based on Genentech's achievement of milestones, assuming all benchmarks
are met for potentially up to $39.0 million per antigen target, and royalties on
net sales of resulting products. Genentech will be responsible for
manufacturing, product development and marketing of any products developed
through this collaboration; ImmunoGen will be reimbursed for any preclinical
materials that it makes under the agreement. The agreement can be renewed for
one subsequent three-year period, for an additional technology access fee.
BRITISH BIOTECH DEVELOPMENT, COMMERCIALIZATION AND LICENSE AGREEMENT
Also in May 2000, the Company entered into a development, commercialization
and license agreement with British Biotech Pharmaceuticals Limited ("British
Biotech"), a biotechnology company located in Oxford, England, to develop and
commercialize the Company's huN901-DM1 TAP for the treatment of small-cell lung
cancer. The agreement grants British Biotech exclusive rights to develop and
commercialize huN901-DM1 in the European Union and Japan. The Company retains
the rights to commercialize huN901-DM1 in the United States and the rest of the
world, as well as the right to manufacture the product worldwide. Under the
terms of the agreement, British Biotech will be responsible for conducting the
clinical trials necessary to achieve marketing approval in the United States,
European Union and Japan. ImmunoGen is responsible for the remaining preclinical
development, and will be reimbursed for manufacturing the product for clinical
trials. British Biotech
F-12
<PAGE>
IMMUNOGEN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. AGREEMENTS: (CONTINUED)
paid a fee of $1.5 million for its territorial rights to huN901-DM1 which has
been deferred, to be recorded as revenue as the Company completes its
preclinical development obligations. Upon approval of the product for marketing
in the United States, the Company will pay to British Biotech a one-time
milestone payment of $3.0 million. ImmunoGen will receive royalties on sales of
huN901-DM1 in the European Union and Japan.
4. COMPUTATION OF LOSS PER COMMON SHARE:
Basic and diluted earnings/(loss) per share is calculated based upon the
weighted average number of common shares outstanding during the period. Diluted
earnings per share incorporates the dilutive effect of stock options, warrants
and other convertible securities. As of June 30, 2000, 1999 and 1998, the total
number of options, warrants and other securities convertible into ImmunoGen
Common Stock equaled 6,964,225, 12,610,917 and 9,779,683 respectively. ImmunoGen
Common Stock equivalents as calculated in accordance with the treasury-stock
accounting method, totaled 4,698,751, 3,666,523 and 1,683,325 as of June 30,
2000, 1999 and 1998 respectively. ImmunoGen Common Stock equivalents have not
been included in the loss per share calculation because their effect is
antidilutive.
5. MARKETABLE SECURITIES:
As of June 30, 1999, $4,225,580 in cash and overnight government repurchase
agreements was classified as cash and cash equivalents. The Company's cash, cash
equivalents and marketable securities as of June 30, 2000 are as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Cash and cash equivalents...................... $ 1,408,908 $ -- $ -- $ 1,408,908
Commercial paper............................... 7,345,113 301,837 (30) 7,646,920
Government treasury notes...................... 8,264,987 10,045 (1,468) 8,273,564
----------- -------- ------- -----------
Total.................................... 17,019,008 311,882 (1,498) 17,329,392
Less amounts classified as cash and cash
equivalents.................................. (1,408,908) -- -- (1,408,908)
----------- -------- ------- -----------
Total marketable securities.............. $15,610,100 $311,882 $(1,498) $15,920,484
=========== ======== ======= ===========
</TABLE>
During the twelve-month period ended June 30, 2000, $310,000 of unrealized
gains on available-for-sale securities were recognized as comprehensive income.
6. NOTE RECEIVABLE:
Effective January 1, 1996, the Company assigned its leases on its Canton
facility and equipment to another biotechnology company. Under the terms of the
agreements, the assignee assumed all payment obligations under the leases, which
amount to approximately $116,000 per month, and made cash payments to the
Company at various dates through July 1999, which totaled approximately
$2.4 million. On July 1, 1999, the final scheduled payment of $350,000 was
received in full, thereby satisfying all obligations under the note.
F-13
<PAGE>
IMMUNOGEN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following at June 30, 2000 and 1999:
<TABLE>
<CAPTION>
JUNE 30,
-------------------------
2000 1999
----------- -----------
<S> <C> <C>
Machinery and equipment............................ $ 2,085,037 $ 1,976,411
Computer hardware and software..................... 761,497 531,998
Assets under construction.......................... 104,400 113,321
Furniture and fixtures............................. 67,229 15,401
Leasehold improvements............................. 8,378,609 8,346,859
----------- -----------
11,396,772 10,983,990
Less accumulated depreciation and amortization..... 9,888,376 9,400,640
----------- -----------
$ 1,508,396 $ 1,583,350
=========== ===========
</TABLE>
Depreciation and amortization expense was $499,000, $555,000 and $1,053,000
for the years ended June 30, 2000, 1999 and 1998, respectively.
As of June 30, 2000 and June 30, 1999 capital lease amortization totaled
$59,000 and $2,000, respectively. As of June 30, 2000 and June 30, 1999 the cost
of capitalized equipment equaled $140,000 and $29,000, respectively, of which
all is classified under Computer hardware & software.
8. COMPREHENSIVE INCOME (LOSS):
The Company presents comprehensive income in accordance with Statement of
Financial Accounting Standard No. 130, "Reporting Comprehensive Income." For the
years ended June 30, 2000, 1999 and 1998, total comprehensive income (loss)
equaled $72,824, $(4,074,960) and $(7,610,937), respectively. Other
comprehensive income was comprised entirely of unrealized gains recognized on
available-for-sale debt securities.
9. MINORITY INTEREST:
In July 1997, ATI entered into a collaboration agreement with BioChem
Pharma Inc. ("BioChem"), a large Canadian biopharmaceutical company. This
agreement granted BioChem an exclusive worldwide license to ATI's proprietary
screens based on two families of proteins involved in apoptosis, for use in
identifying leads for anti-cancer drug development. As of April 2000, BioChem
fulfilled all of its funding obligations under the agreement by purchasing a
total of $11.125 million in non-voting, non-dividend-bearing convertible
preferred stock of ATI.
In April 2000, BioChem informed ATI of its decision not to extend the
agreement beyond its scheduled July 31, 2000 termination date. Consequently,
under the terms of the agreement, rights to all screens delivered to BioChem
reverted to ATI effective August 1, 2000. However, certain provisions pertaining
to the license of any products resulting from the collaboration will remain in
force. As of August 1, 2000, no compound leads were identified. Until July 31,
2000, all remaining proceeds of the $11.125 million BioChem investment in ATI
were restricted to support the research and development activities of the
collaboration. After that date, all residual proceeds represent unrestricted
assets of ATI. Of the Company's $17.3 million in cash, cash equivalents and
marketable securities as of June 30,
F-14
<PAGE>
IMMUNOGEN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. MINORITY INTEREST: (CONTINUED)
2000, $1.4 million represents funds restricted to support ATI's research and
development activities under the BioChem agreement.
The preferred stock issued to BioChem is convertible into ATI common stock
at any time after three years from the date of first issuance, at a conversion
price equal to the then current market price of the ATI common stock, but in any
event at a price that will result in BioChem acquiring at least 15% of the then
outstanding ATI common stock. Through June 2000, 11,125 shares of ATI preferred
stock were issued to BioChem, representing a 15% minority interest (on an
if-converted and fully-diluted basis) in the net equity of ATI. This minority
interest portion of ATI's loss reduced ImmunoGen's net loss in each of
twelve-month periods ended June 30, 2000, 1999 and 1998 by $75,870, $101,160,
and $159,524, respectively. Based upon an independent appraisal, approximately
3% of the $11.125 million invested to date, or approximately $334,000, has been
allocated to the minority interest in ATI, with the remainder, or approximately
$10.791 million allocated to the Company's equity.
In accordance with the agreement, proceeds received by ATI from BioChem are
restricted to support the research and development activities of the
collaboration through July 2000. ATI also incurred certain fees reimbursable by
Biochem. At June 30, 2000 and June 30, 1999, the total outstanding reimbursable
fees equaled $47,352 and $67,108 respectively and were reflected on the
Company's consolidated balance sheet within the asset "due from related
parties". Summarized information for ATI at June 30, 2000, 1999 and 1998 and for
the years then ended follows:
<TABLE>
<CAPTION>
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
Total assets........................... $ 1,454,621 $ 2,617,265 $ 2,361,334
Total liabilities...................... 525,847 382,561 250,438
Total revenues......................... 119,393 123,920 112,423
Total expenses (principally research
and development)..................... (3,960,628) (3,370,661) (3,159,437)
Net loss............................... (3,841,235) (3,246,741) (3,047,014)
</TABLE>
As part of the BioChem agreement, BioChem also received warrants to purchase
shares of ImmunoGen Common Stock equal to the amount invested in ATI during the
three-year research term. Beginning July 31, 2000, these warrants will be
exercisable for a number of shares of ImmunoGen Common Stock determined by
dividing $11.125 million, the amount of BioChem's investment in ATI, by the
market price of ImmunoGen Common Stock on the exercise date, subject to certain
limitations imposed by the Nasdaq Stock Market rules, which limit the sale or
issuance by an issuer of certain securities at a price less than the greater of
book or market value. Consequently, BioChem's ability to convert all of its
ImmunoGen warrants into ImmunoGen Common Stock is limited to a total of 20% of
the number of shares of ImmunoGen's Common Stock outstanding on the date of the
initial transaction to the extent that the conversion price would be less than
the market price of ImmunoGen Common Stock on that date, unless stockholder
approval for such conversion is obtained, if required, or unless the Company has
obtained a waiver of that requirement. The exercise price is payable in cash or
shares of ATI's preferred stock, at BioChem's option. ImmunoGen expects that
BioChem will use its shares of ATI preferred stock, in lieu of cash, to exercise
the warrants.
F-15
<PAGE>
IMMUNOGEN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. INCOME TAXES:
No income tax provision or benefit has been provided for U.S. federal income
tax purposes as the Company has incurred losses since inception. As of June 30,
2000, net deferred tax assets totaled approximately $56.4 million, consisting of
federal net operating loss carryforwards of approximately $128.4 million, state
net operating loss carryforwards of approximately $21.4 million, net book to tax
timing differences of approximately $8.9 million and approximately $7.1 million
of research and experimentation credit carryforwards. These net operating loss
and credit carryforwards will expire at various dates between 2001 and 2015 and
may be subject to limitation when used due to certain changes in ownership of
the Company's capital stock. Due to the uncertainty surrounding the realization
of these favorable tax attributes in future tax returns, the net deferred tax
assets of approximately $56.4 million and $48.4 million at June 30, 2000 and
1999, respectively, have been fully offset by a valuation allowance. Income tax
expense consists primarily of state income taxes levied on the interest income
of the Company's wholly-owned subsidiary, ImmunoGen Securities Corp., at a rate
of 1.32%, and state minimum excise tax liability.
11. CAPITAL STOCK:
COMMON AND PREFERRED STOCK
In October 1996, the Company's $2.5 million debenture issued in June 1996
was converted into 2,500 shares of the Company's Series A Convertible Preferred
Stock ("Series A Stock"), with a stated value of $1,000 per share. Holders of
the Series A Stock were entitled to receive, when and as declared by the Board
of Directors, cumulative dividends in cash, or at the Company's option, shares
of the Company's Common Stock, in arrears on the conversion date. The 2,500
shares of Series A Stock were convertible into the same number of shares of
Common Stock as the $2.5 million debenture. Each share of Series A Stock was
convertible into a number of shares of Common Stock determined by dividing
$1,000 by the lower of (i) $2.50 (subject to certain restrictions) and (ii) 85%
of the average of the closing bid price of the Common Stock for the five days
prior to conversion. In addition, holders of Series A Stock were entitled to
receive, on conversion of the Series A Stock, a number of warrants equal to 50%
of the number of shares of Common Stock issued on conversion. On January 5,
1998, the remaining 1,100 unconverted shares of the Series A Stock plus accrued
dividends thereon were converted into 1,347,491 shares of the Company's Common
Stock. In connection with the Series A Stock conversions, warrants to purchase
1,338,117 shares of Common Stock were issued. The warrants have an exercise
price of $4 per share and expire at various dates during 2002 and 2003. The
warrants were valued at $623,000 and were accounted for as non-cash dividends on
convertible preferred stock at the time of issuance of the Series A Stock.
Also in October 1996, the Company sold 3,000 shares of its Series B
Convertible Preferred Stock ("Series B Stock"). As of February 4, 1997, all
3,000 shares of Series B Stock plus accrued dividends thereon had been converted
into 1,384,823 shares of the Company's Common Stock. In connection with the
issuance of the Series B Stock, warrants to purchase 500,000 shares of the
Company's Common Stock were also issued. Of these, 250,000 warrants are
exercisable at $5.49 per share and expire in October 2001. The remaining 250,000
warrants are exercisable at $3.68 per share and expire in January 2002. These
warrants were valued at $618,900, and were accounted for as non-cash dividends
on convertible preferred stock at the time of issuance of the Series B Stock.
In January 1997, the Company sold $3.0 million of its Series C Convertible
Preferred Stock ("Series C Stock") in connection with the October 1996 Private
Placement (the "October 1996 Private
F-16
<PAGE>
IMMUNOGEN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. CAPITAL STOCK: (CONTINUED)
Placement") to an institutional investor. Each share of Series C Stock was
convertible into a number of shares of Common Stock determined by dividing
$1,000 by the lower of (i) $2.61 and (ii) 85% of the market price of the
Company's Common Stock at the time of conversion. On August 1, 1997, the
remaining 700 unconverted shares of the Series C Stock plus accrued dividends
thereon were converted into 701,180 shares of the Company's Common Stock. In
connection with all Series C Stock, warrants to purchase 1,147,754 shares of
Common Stock were issued to the investor. These warrants are exercisable at
$2.31 per share and expire in April 2002. The $1.2 million value of these
warrants was accounted for as non-cash dividends on convertible preferred stock
at the time of issuance of the Series C Stock.
In June 1997, the Company sold $1.0 million of its Series D Convertible
Preferred Stock ("Series D Stock") in connection with a financing agreement that
was entered into in October 1996. The Series D Stock was convertible at any time
into a number of shares of Common Stock determined by dividing $1,000 by the
lower of (i) $1.4375 and (ii) 85% of the market price of the Company's Common
Stock at the time of conversion. As of December 31, 1997, all 1,000 shares of
Series D Stock and accumulated dividends thereon had been converted into
1,001,387 shares of Common Stock. In addition, the investor received warrants to
purchase 454,545 shares of the Company's Common Stock. These warrants have an
exercise price of $1.94 per share and expire in 2002. The value of these
warrants, $278,000, was determined at the time of issuance of the convertible
securities and was accounted for as non-cash dividends on convertible preferred
stock at that time.
Also in June 1997, the Company and ATI satisfied an obligation of ATI to one
of its scientific advisors, totaling $120,000, by paying the advisor a
combination of cash and 41,481 shares of the Company's Common Stock.
In December 1997, the Company entered into an agreement, which was amended
in March 1998, to sell $3.0 million of its non-dividend-bearing Series E
Convertible Preferred Stock ("Series E Stock") to an institutional investor. The
investment was completed in three installments: $1.0 million in December 1997;
$500,000 in March 1998; and $1.5 million in July 1998. The issued Series E Stock
became convertible into Common Stock at the end of a two-year holding period at
$1.0625 per share. In addition, as of June 30, 2000, warrants to purchase
2,823,528 shares of Common Stock had been issued. These warrants become
exercisable at the end of a two-year holding period, subject to certain
provisions. The value of the warrants was determined at the time of their
issuance and accounted for as non-cash dividends on convertible preferred stock.
Approximately $580,500 and $918,000 in non-cash dividends were recorded in the
each of fiscal 1998 and 1999, respectively. These warrants have an exercise
price of $2.125 per share, and vest over a period of two years subject to
certain provision. Of the total 2,823,528 warrants issued, 941,176 expire in
2004 and 1,882,352 expire in 2005. Also in relation to this agreement, 75,000
shares of common stock were issued to a third party as a finder's fee. The value
of these issued shares equaled $107,000 based on closing prices on the date of
grant and charged to operations.
In January 2000, holders of the Company's Series E Convertible Preferred
Stock ("Series E Stock") exercised their right to convert all 2,400 shares of
Series E Stock into 2,823,528 shares of the Company's Common Stock. In
December 1999, six warrant holders exercised their rights to acquire 2,028,019
of shares of Common Stock at a range of $0.01 to $2.31 per share. In
January 2000, two holders of warrants exercised their rights to acquire 454,600
of shares of Common Stock at a range of $1.94 to $2.31 per share. In
February 2000, five holders of warrants exercised their rights to acquire
F-17
<PAGE>
IMMUNOGEN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. CAPITAL STOCK: (CONTINUED)
571,670 shares of Common Stock at a price range of $1.94 to $5.49 per share. In
March 2000, two holders of warrants exercised their rights to acquire 349,439
shares of Common Stock at a price range of $2.31 to $2.68 per share. During the
twelve-month period ended June 30, 2000, holders of options issued through the
Company's 1986 Incentive Stock Option Plan, as amended, exercised their rights
to acquire an aggregate of 131,567 shares at prices ranging from $0.84 per share
to $4.25 per share. The total proceeds from these option and warrant exercises,
$7.1 million will be used to fund current operations.
In February 1999, as part of the exclusive license agreement with SB, at
ImmunoGen's option, SB agreed to purchase up to $5 million of ImmunoGen Common
Stock over the next two years, subject to certain conditions. As of June 30,
2000, SB exercised a put option for $2.5 million resulting in the issuance of
1,023,039 shares of ImmunoGen Common Stock in September 1999.
In July 1997, the Company's majority-owned subsidiary, ATI, entered into a
collaboration with BioChem. As part of the agreement, BioChem received warrants
to purchase shares of ImmunoGen Common Stock equal to $11.125 million, the
amount invested in ATI by BioChem during the three-year research term. These
warrants are exercisable at any time on or after July 31, 2000, until and
including July 31, 2002, into a number of shares of ImmunoGen Common Stock
determined by dividing $11.125 million by the market price of the ImmunoGen
Common Stock on the exercise date, subject to certain limitations. In
April 2000, the last quarterly investment of $843,000 was received and warrants
corresponding to that amount were issued. Until July 31, 2000, proceeds from
this investment were restricted to fund the ongoing ATI research collaboration.
After that date, all residual proceeds represented unrestricted assets of ATI.
WARRANTS
In addition to the warrants discussed in this footnote, subheading COMMON
AND PREFERRED STOCK, the Company issued warrants to purchase 509,000 and 500,000
shares of Common Stock at exercise prices of $4.00 and $6.00 per share,
respectively, in connection with a private placement of the Company's
convertible debentures in March 1996. These warrants expire in 2001. As a
finder's fee, the Company issued warrants to purchase 250,000 shares of the
Company's Common Stock to a third party. The 250,000 warrants have an exercise
price of $3.105 and expire in 2003.
STOCK OPTIONS
Under the Company's Restated Stock Option Plan (the "Plan"), originally
adopted by the Board of Directors on February 13, 1986, and subsequently amended
and restated, employees, consultants and directors may be granted options to
purchase shares of Common Stock of the Company. In July 1999, the Board of
Directors authorized, and the shareholders subsequently approved, amendments to
the Plan to increase the total number of shares reserved for the grant of
options to 4.85 million shares of Common Stock. In addition to options granted
under the Plan, the Board previously approved the
F-18
<PAGE>
IMMUNOGEN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. CAPITAL STOCK: (CONTINUED)
granting of other, non-qualified options. Information related to stock option
activity under the Plan and outside of the Plan during fiscal years 1998, 1999
and 2000 is as follows:
<TABLE>
<CAPTION>
NON-QUALIFIED OPTIONS
OPTIONS ISSUED UNDER ISSUED
THE PLAN OUTSIDE OF THE PLAN
--------------------------- --------------------------
AVERAGE AVERAGE
SHARES PRICE PER SHARE SHARES PRICE PER SHARE
--------- --------------- -------- ---------------
<S> <C> <C> <C> <C>
Outstanding at June 30, 1997.................. 1,492,967 $4.40 20,000 $7.69
--------- ----- ------ -----
Granted..................................... 1,306,700 0.99 -- --
Exercised................................... 114,302 0.90 -- --
Canceled.................................... 193,012 4.00 -- --
--------- ----- ------ -----
Outstanding at June 30, 1998.................. 2,492,353 $2.92 20,000 $7.69
--------- ----- ------ -----
Granted..................................... 642,700 2.06 -- --
Exercised................................... 174,245 1.81 -- --
Canceled.................................... 151,659 5.58 -- --
--------- ----- ------ -----
Outstanding at June 30, 1999.................. 2,809,149 $2.65 20,000 $7.69
--------- ----- ------ -----
Granted..................................... 596,200 7.27 -- --
Exercised................................... 131,567 1.67 -- --
Canceled.................................... 61,774 4.92 -- --
--------- ----- ------ -----
Outstanding at June 30, 2000.................. 3,212,008 $3.50 20,000 $7.69
========= ===== ====== =====
</TABLE>
The following table summarizes aggregate information about total stock
options under the Plan and outside the Plan, outstanding at June 30, 2000:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------- ------------------------------
WEIGHTED-AVERAGE
REMAINING
RANGE OF NUMBER CONTRACTUAL WEIGHTED-AVERAGE NUMBER WEIGHTED-AVERAGE
EXERCISE PRICES OUTSTANDING LIFE (YEARS) EXERCISE PRICE EXERCISABLE EXERCISE PRICE
--------------------- ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$ 0.84 -- 2.50 2,254,458 7.28 $ 1.57 1,483,037 $ 1.59
2.51 -- 5.00 40,650 6.34 3.83 27,775 3.96
5.01 -- 7.50 670,050 8.19 6.58 151,150 5.92
7.51 -- 10.00 3,500 3.34 8.59 3,500 8.59
10.01 -- 12.50 215,050 3.91 11.44 154,050 11.48
12.51 -- 17.00 49,200 1.85 14.75 44,800 14.75
--------- ---------
3,232,008 1,863,312
========= =========
</TABLE>
F-19
<PAGE>
IMMUNOGEN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. CAPITAL STOCK: (CONTINUED)
The Company has granted options at the fair market value of the Common Stock
on the date of such grant. The following options and their respective average
prices per share were outstanding and exercisable at June 30, 2000, 1999 and
1998:
<TABLE>
<CAPTION>
AVERAGE AVERAGE
OUTSTANDING PRICE PER SHARE EXERCISABLE PRICE PER SHARE
----------- --------------- ----------- ---------------
<S> <C> <C> <C> <C>
June 30, 2000.............. 3,232,008 $3.50 1,863,312 $3.12
June 30, 1999.............. 2,829,149 2.65 1,343,651 3.94
June 30, 1998.............. 2,512,353 2.92 1,196,978 4.95
</TABLE>
Options vest at various rates over periods of up to four years and may be
exercised within ten years from the date of grant.
The Company applies the Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretation in
accounting for its Plan. Accordingly, no compensation expense is generally
recognized for its stock-based compensation plans. However, in April of 2000,
52,916 options previously granted to a terminating officer were granted
accelerated vesting and, accordingly, the Company charged $350,000 to
compensation expense representing the difference between the exercise price and
the fair value of the stock at the accelerated date.
Had compensation costs for the Company's stock-based compensation been
determined based on the fair value at the grant dates as calculated in
accordance with Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation," the Company's net basic and diluted loss per
common share for the years ended June 30, 2000, 1999 and 1998 would have been
adjusted to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
JUNE 30, 2000 JUNE 30, 1999 JUNE 30, 1998
------------- ------------- -------------
<S> <C> <C> <C>
Net Loss................................ $1,378,740 $5,648,419 $8,681,477
Basic and diluted loss per share........ $ 0.05 $ 0.22 $ 0.36
</TABLE>
The above amounts only include grants within the last three years and may
not be indicative of future pro forma net loss or earnings amounts because
expense is recognized over the vesting period, which is greater than the three
years shown.
The fair value of each stock option is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions:
<TABLE>
<CAPTION>
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Dividend Yield........................................ None None None
Volatility............................................ 107.00% 85.00% 85.00%
Risk-free interest rate............................... 6.72% 4.96% 5.53%
Expected life (years)................................. 5.5 5.5 5.5
</TABLE>
Using the Black-Scholes option-pricing model, the fair value of options
granted during fiscal 2000, 1999 and 1998 was $6.00, $1.47 and $0.72,
respectively.
The Black-Scholes option-pricing model was developed for use in estimating
the fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option-pricing
F-20
<PAGE>
IMMUNOGEN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. CAPITAL STOCK: (CONTINUED)
models require the use of highly subjective assumptions, including the expected
stock price volatility. Because the Company's employee stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective assumptions can materially affect the fair
value estimates, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock-based
compensation.
COMMON STOCK RESERVED
Shares of authorized Common Stock have been reserved for the exercise of all
options and warrants outstanding.
12. COMMITMENTS:
OPERATING LEASES
At June 30, 2000, the Company leased facilities in Norwood and Cambridge,
Massachusetts. In fiscal year 1997, the Company amended its lease on the Norwood
facility, extending the lease term to June 30, 2000, with an option to renew
until June 30, 2003. The Cambridge facilities are rented under two separate
lease arrangements. In fiscal year 1997, the Company entered into a three-year
lease renewal for one of these properties, to September 2000. The lease term for
the second Cambridge facility expires in 2003. This facility was subject to a
sublease agreement, which expired in April 2000. Total net receipts under the
sublease agreement, which were credited to rent expense, were approximately
$3.4 million through April 2000, of which approximately $707,000, $796,000 and
$774,000 was received by the Company in fiscal 2000, 1999 and 1998,
respectively. The Company is required to pay all operating expenses for the
leased premises subject to escalation charges for certain expense increases over
a base amount. Facilities rent expense/(income), net of the above mentioned
subleased income, was approximately $318,000, $146,000 and $140,000 during
fiscal years 2000, 1999 and 1998.
The minimum rental commitments, including real estate taxes and other
expenses, for the next four years under the non-cancelable capital and operating
lease agreements are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
PERIOD LEASES LEASES
------ ---------- --------
<S> <C> <C>
2001................................................... $ 794,604 $65,632
2002................................................... 716,051 8,683
2003................................................... 583,871 --
---------- -------
Total minimum lease payment............................ 2,094,526 74,315
Total lease commitments................................ $2,094,526 74,315
---------- -------
Less amount representing interest...................... 6,095
-------
Present value of net minimum capital lease payments.... $68,220
=======
</TABLE>
13. EMPLOYEE BENEFIT PLANS:
Effective September 1, 1990, the Company implemented a deferred compensation
plan under Section 401(k) of the Internal Revenue Code (the "401(k) Plan").
Under the 401(k) Plan, eligible employees are permitted to contribute, subject
to certain limitations, up to 15% of their gross salary.
F-21
<PAGE>
IMMUNOGEN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. EMPLOYEE BENEFIT PLANS: (CONTINUED)
The Company makes a matching contribution that currently totals 20% of the
employee's contribution, up to a maximum amount equal to 1% of the employee's
gross salary. In fiscal, 2000, 1999 and 1998, the Company's contributions to the
401(k) Plan amounted to approximately $41,075, $26,000, and $25,000,
respectively.
14. SUBSEQUENT EVENT:
On September 5, 2000, the Company entered into a collaboration agreement
with Abgenix, Inc. of Fremont, California. The agreement provides Abgenix with
access to ImmunoGen's maytansinoid Tumor-Activated Prodrug (TAP) technology for
use with Abgenix's fully human antibodies generated with XenoMouse technology.
ImmunoGen will receive $5 million in technology access fee payments, as well as
potential milestone payments, and royalties on net sales of any resulting
products. In addition, on September 7, 2000, Abgenix purchased $15 million of
ImmunoGen Common Stock at $19.00 per share.
F-22
<PAGE>
IMMUNOGEN, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2000 AND JUNE 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
2000 2000
------------- ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 19,457,718 $ 1,408,908
Marketable securities....................................... 11,113,563 15,920,484
Due from related parties.................................... 40,611 47,352
Due from Collaborative Partners............................. 5,000,000 --
Prepaid and other current assets............................ 124,303 415,441
------------ ------------
Total current assets................................ 35,736,195 17,792,185
------------ ------------
Property and equipment, net of accumulated depreciation..... 2,095,629 1,508,396
Other assets................................................ 43,700 43,700
------------ ------------
Total assets........................................ $ 37,875,524 $ 19,344,281
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable............................................ $ 961,912 $ 891,419
Accrued compensation........................................ 249,304 204,210
Other current accrued liabilities........................... 1,768,250 987,475
Current portion of capital lease obligations................ 47,259 60,083
Current portion of deferred revenue......................... 866,000 325,000
------------ ------------
Total current liabilities........................... 3,892,725 2,468,187
------------ ------------
Capital lease obligations................................... 5,530 8,137
Deferred Revenue............................................ 4,200,000 1,500,000
------------ ------------
Total liabilities................................... 8,098,255 3,976,324
------------ ------------
Stockholders' equity:
Common stock, $.01 par value; authorized 50,000,000 shares
as of September 30, 2000 and June 30, 2000; issued and
outstanding 34,358,076 shares and 33,050,659 shares as
of September 30, 2000 and June 30, 2000, respectively... 343,581 330,507
Additional paid-in capital.................................. 185,530,295 168,682,991
Accumulated deficit......................................... (156,388,717) (153,955,925)
Accumulated other comprehensive income...................... 292,110 310,384
------------ ------------
Total stockholders' equity.......................... 29,777,269 15,367,957
------------ ------------
Total liabilities and stockholders' equity.......... $ 37,875,524 $ 19,344,281
============ ============
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
F-23
<PAGE>
IMMUNOGEN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
----------------------------
2000 1999
----------- ----------
<S> <C> <C>
Revenues:
Revenue earned under collaboration agreement.............. $ 1,759,000 $4,000,000
Development fees.......................................... -- 4,800
Licensing................................................. -- 290
----------- ----------
Total revenues........................................ 1,759,000 4,005,090
----------- ----------
Expenses:
Research and development.................................. 3,568,933 1,831,023
General and administrative................................ 853,909 508,335
----------- ----------
Total expenses........................................ 4,422,842 2,339,358
----------- ----------
Net earnings/(loss) from operations......................... (2,663,842) 1,665,732
----------- ----------
Loss on the sale of assets................................ (1,900) (157)
Interest.................................................. 213,601 59,296
Other income.............................................. 19,349 --
----------- ----------
Net earnings/(loss) before minority interest................ (2,432,792) 1,724,871
----------- ----------
Minority interest in net loss of consolidated
subsidiary.............................................. -- 25,290
----------- ----------
Net earnings/loss........................................... $(2,432,792) $1,750,161
=========== ==========
Earnings/(loss) per common share
Basic..................................................... $ (0.07) $ 0.07
=========== ==========
Diluted................................................... $ (0.07) $ 0.05
=========== ==========
Average common shares outstanding
Basic..................................................... 33,307,465 25,913,856
=========== ==========
Diluted................................................... 33,307,465 33,684,371
=========== ==========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
F-24
<PAGE>
IMMUNOGEN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED JUNE 30, 2000 AND THE THREE MONTHS ENDED SEPTEMBER 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK PREFERRED STOCK ADDITIONAL OTHER
--------------------- ------------------- PAID-IN ACCUMULATED COMPREHENSIVE
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT INCOME
---------- -------- -------- -------- ------------ ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1999........... 25,668,797 $256,687 2,400 $24 $158,790,821 $(153,718,365) $ --
========== ======== ====== === ============ ============= ========
Unrealized gains on marketable
Securities, net.................. -- -- -- -- -- -- 310,384
Net loss for the year ended June
30, 2000......................... -- -- -- -- -- (237,560) --
Comprehensive Income............... -- -- -- -- -- -- --
Stock Options exercised............ 131,567 1,316 -- -- 219,192 -- --
Exercise of put option............. 1,023,039 10,231 -- -- 2,489,769 -- --
Warrants exercised................. 3,403,728 34,037 -- -- 4,408,575 -- --
Conversion of Series E Convertible
Preferred Stock into Common
Stock............................ 2,823,528 28,236 (2,400) (24) (28,212) -- --
Compensation for stock option
vesting acceleration for
terminated officer............... -- -- -- -- 349,716 -- --
Value ascribed to ImmunoGen
warrants issued to BioChem, net
of financing costs............... -- -- -- -- 2,453,130 -- --
---------- -------- ------ --- ------------ ------------- --------
Balance at June 30, 2000........... 33,050,659 $330,507 -- $-- $168,682,991 $(153,955,925) $310,384
========== ======== ====== === ============ ============= ========
Unrealized loss on marketable
Securities, net.................. -- -- -- -- -- -- (18,274)
Net loss for the quarter ended Sept
30, 2000......................... -- -- -- -- -- (2,432,792) --
Comprehensive loss................. -- -- -- -- -- -- --
Stock Options exercised............ 214,101 2,141 -- -- 525,464 -- --
Warrants exercised................. 303,842 3,038 -- -- 1,329,735 -- --
Issuance of Common Stock to
Abgenix.......................... 789,474 7,895 -- -- 14,992,105 -- --
---------- -------- ------ --- ------------ ------------- --------
Balance at September 30, 2000...... 34,358,076 $343,581 -- $-- $185,530,295 $(156,388,717) $292,110
========== ======== ====== === ============ ============= ========
<CAPTION>
COMPREHENSIVE TOTAL
INCOME STOCKHOLDERS'
(LOSS) EQUITY
-------------- -------------
<S> <C> <C>
Balance at June 30, 1999........... $ -- $ 5,329,167
========== ===========
Unrealized gains on marketable
Securities, net.................. 310,384 310,384
Net loss for the year ended June
30, 2000......................... (237,560) (237,560)
----------
Comprehensive Income............... 72,824 --
==========
Stock Options exercised............ -- 220,508
Exercise of put option............. -- 2,500,000
Warrants exercised................. -- 4,442,612
Conversion of Series E Convertible
Preferred Stock into Common
Stock............................ -- --
Compensation for stock option
vesting acceleration for
terminated officer............... -- 349,716
Value ascribed to ImmunoGen
warrants issued to BioChem, net
of financing costs............... -- 2,453,130
---------- -----------
Balance at June 30, 2000........... $ -- $15,367,957
========== ===========
Unrealized loss on marketable
Securities, net.................. (18,274) (18,274)
Net loss for the quarter ended Sept
30, 2000......................... (2,432,792) (2,432,792)
----------
Comprehensive loss................. (2,451,066)
==========
Stock Options exercised............ -- 527,605
Warrants exercised................. -- 1,332,773
Issuance of Common Stock to
Abgenix.......................... -- 15,000,000
---------- -----------
Balance at September 30, 2000...... $ -- $29,777,269
========== ===========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
F-25
<PAGE>
IMMUNOGEN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
-------------------------
2000 1999
------------ ----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings/(loss) to common stockholders................ $ (2,432,792) $1,750,161
Adjustments to reconcile net loss to net cash used for
operating activities:
Depreciation and amortization........................... 126,441 118,921
Loss on sale of property and equipment.................. 1,900 157
Minority interest in net loss of consolidated
subsidiary............................................ -- (25,290)
Amortization of deferred lease.......................... -- (13,188)
Changes in operating assets and liabilities:
Due from Collaborative Partners....................... (5,000,000) --
Due from related parties.............................. 6,741 (3,964,424)
Prepaid and other current assets...................... 310,585 (16,231)
Accounts payable...................................... 70,493 27,624
Accrued compensation.................................. 45,094 (82,439)
Deferred revenue...................................... 3,241,000 --
Other current accrued liabilities..................... 780,775 (15,414)
------------ ----------
Net cash used for operating activities.............. (2,849,763) (2,189,295)
------------ ----------
Cash flows from investing activities:
Payments received on note receivable...................... -- 350,000
Proceeds from maturities of marketable securities......... 4,788,647 --
Proceeds from sale of property and equipment.............. 7,500 200
Capital expenditures...................................... (723,074) (104,233)
------------ ----------
Net cash provided by investing activities........... 4,073,073 245,967
------------ ----------
Cash flows from financing activities:
Proceeds from Common Stock issuances, net................. 15,000,000 2,500,000
Proceeds from Stock Options exercised, net................ 508,158 656
Proceeds from Warrants exercised, net..................... 1,332,773 --
Proceeds from issuance of subsidiary convertible preferred
stock, net.............................................. -- 843,000
Principal payments on capital lease obligations........... (15,431) (13,471)
------------ ----------
Net cash provided by financing activities........... 16,825,500 3,330,185
------------ ----------
Net change in cash and cash equivalents..................... 18,048,810 1,386,857
------------ ----------
Cash and cash equivalents, beginning balance................ 1,408,908 4,225,580
------------ ----------
Cash and cash equivalents, ending balance................... $ 19,457,718 $5,612,437
============ ==========
Supplemental disclosure of noncash financing activities:
Due from related party for quarterly investment payment... $ -- $ 843,000
============ ==========
Noncash exercise of stock options......................... $ 19,447 $ --
============ ==========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
F-26
<PAGE>
IMMUNOGEN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
ImmunoGen, Inc. ("ImmunoGen" or the "Company") was incorporated in
Massachusetts in 1981 to develop, produce and market commercial anti-cancer and
other pharmaceuticals based on molecular immunology. The Company continues to
research and develop its various products and technologies, and does not expect
to derive revenue from commercially approved product sales within the
foreseeable future. It is anticipated that the Company's existing capital
resources, enhanced by collaborative agreement funding, will enable current and
planned operations to be maintained through at least the next twelve-month
period. However, if the Company is unable to achieve subsequent milestones under
its collaborative agreements (see Note 2), the Company may be required to defer
or limit some or all of its research, development and/or clinical projects.
The Company is subject to risks common to companies in the biotechnology
industry including, but not limited to, the development by the Company or its
competitors of new technological innovations, dependence on key personnel,
protection of proprietary technology, manufacturing and marketing limitations,
collaboration arrangements, third-party reimbursements, the need to obtain
additional funding, and compliance with governmental regulations.
BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements at
September 30, 2000 and June 30, 2000 and for the three-month periods ended
September 30, 2000 and 1999 include the accounts of the Company and its
subsidiaries, ImmunoGen Securities Corp. and Apoptosis Technology, Inc. ("ATI").
Although the condensed consolidated financial statements are unaudited, they
include all of the adjustments, consisting only of normal recurring adjustments,
which management considers necessary for a fair presentation of the Company's
financial position in accordance with generally accepted accounting principles
for interim financial information. Certain information and footnote disclosures
normally included in the Company's annual financial statements have been
condensed or omitted. The preparation of interim financial statements requires
the use of management's estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the interim financial statements and the reported
amounts of revenues and expenditures during the reported period. The results of
the interim periods are not necessarily indicative of the results for the entire
year. Accordingly, the interim financial statements should be read in
conjunction with the audited financial statements and notes thereto included in
the Company's Annual Report on Form 10-K for the year ended June 30, 2000.
CASH AND CASH EQUIVALENTS
The Company considers all investments purchased with maturity dates of three
months or less from the date of acquisition to be cash equivalents.
MARKETABLE SECURITIES
In accordance with the Company's investment policy, surplus cash is invested
in investment-grade corporate and U.S. Government debt securities typically with
maturity dates of less than one year. The Company determines the appropriate
classification of marketable securities at the time of purchase and
F-27
<PAGE>
IMMUNOGEN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
reevaluates such designation as of each balance sheet date. Marketable
securities which meet the criteria for classification as available-for-sale are
carried at fair value based on quoted market prices. Unrealized gains and losses
are reported net, as comprehensive income, within shareholders' equity. The cost
of debt securities is adjusted for amortization of premiums and accretion of
discounts to maturity with all amortization/accretion included in interest
income.
As of September 30, 2000 and June 30, 2000, $19,457,718 and $1,408,908,
respectively in cash and overnight government repurchase agreements were
classified as cash and cash equivalents. The Company's cash, cash equivalents
and marketable securities as of September 30, 2000 are as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
----------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
Cash and money market funds................. $ 4,457,718 $ -- $ -- $ 4,457,718
Commercial paper............................ 18,927,262 272,738 19,200,000
Government treasury notes................... 6,894,191 19,372 6,913,563
----------- -------- ------------ -----------
Total................................... 30,279,171 292,110 30,571,281
Less amounts classified as cash and cash
equivalents............................... (19,457,718) -- -- (19,457,718)
----------- -------- ------------ -----------
Total marketable securities................. $10,821,453 $292,110 $ $11,113,563
=========== ======== ============ ===========
</TABLE>
No realized gains or losses on available-for-sale securities were recognized
during the three-month period ended September 30, 2000.
COMPUTATION OF LOSS PER COMMON SHARE
Basic and diluted earnings/(loss) per share is calculated based upon the
weighted average number of common shares outstanding during the period. Diluted
earnings per share incorporates the dilutive effect of stock options, warrants
and other convertible securities. ImmunoGen Common Stock equivalents, as
calculated in accordance with the treasury-stock accounting method, equaled
4,677,120 and 7,770,515 as of September 30, 2000 and 1999, respectively.
Components of calculating net earnings/ (loss) per share are set forth in the
following table:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
----------------------------
2000 1999
----------- ----------
<S> <C> <C>
Net earnings/(loss) to common shareholders........ $(2,432,792) $1,750,161
=========== ==========
Weighted average common shares outstanding,
basic........................................... 33,307,465 25,913,856
Net effect of dilutive instruments:
Convertible preferred stock................... 339,177 6,797,845
Options....................................... 2,363,100 771,600
Warrants...................................... 1,974,843 201,070
----------- ----------
Weighted average common shares outstanding,
diluted......................................... 37,984,585* 33,684,371
=========== ==========
Earnings/(loss) per common share, basic........... $ (0.07) $ 0.07
=========== ==========
Earnings/(loss) per common share, dilutive........ $ (0.07) $ 0.05
=========== ==========
</TABLE>
------------------------
* The dilutive effects of common stock equivalents were not included in the
September 30, 2000 calculation, as their effect was antidilutive.
F-28
<PAGE>
IMMUNOGEN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
COMPREHENSIVE INCOME
The Company presents comprehensive income in accordance with Statement of
Financial Accounting Standard No. 130, "Reporting Comprehensive Income." For the
periods ended September 30, 2000 and 1999, total comprehensive loss equaled
$2,451,066 and $0, respectively. Comprehensive income was comprised entirely of
unrealized gains recognized on available-for-sale debt securities.
2. AGREEMENTS
In February 1999, the Company entered into an exclusive license agreement
with SmithKline Beecham plc, London and SmithKline Beecham, Philadelphia
(collectively, "SB") to develop and commercialize ImmunoGen's lead tumor
activated prodrug ("TAP"), huC242-DM1/SB-408075 (the "SB Agreement"). Under the
terms of the agreement, the Company could receive more than $40.0 million,
subject to the achievement by the Company of certain development milestones. The
Company is also entitled to receive royalty payments on future product sales, if
and when they commence. Finally, at ImmunoGen's option, SB will purchase up to
$5.0 million of ImmunoGen Common Stock over the next two years, subject to
certain conditions. Through September 30, 2000, SB had purchased $2.5 million
worth of ImmunoGen Common Stock.
The SB Agreement is expected to provide the Company with sufficient cash
funding to carry out its responsibilities in developing huC242-DM1/SB-408075. To
that end, the Company will be responsible for costs associated with the Phase
I/II clinical study, which was initiated in December 1999. All costs subsequent
to this Phase I/II clinical study will be the responsibility of SB.
As of September 30, 2000, the Company had received five milestones totalling
11.5 million under the SB Agreement, which we recorded as collaboration revenue,
with the exception of $325,000 of the fourth milestone and $241,000 of the fifth
milestone which have been recorded as deferred revenue until such time as the
remaining ongoing commitments associated with these milestones have been
satisfied.
In May 2000, the Company executed two separate licensing agreements with
Genentech, Inc. of South San Francisco, California. The first agreement grants
an exclusive license to Genentech for ImmunoGen's maytansinoid TAP technology
for use with antibodies such as Herceptin-Registered Trademark-. Under the terms
of the agreement, Genentech will receive exclusive worldwide rights to
commercialize anti-HER2 targeting products using ImmunoGen's maytansinoid TAP
platform. Genentech will be responsible for manufacturing, product development
and marketing of any products resulting from the agreement; ImmunoGen will be
reimbursed for any preclinical and clinical materials that it makes under the
agreement. ImmunoGen received and recorded as revenue a $2.0 million
non-refundable payment for execution of the agreement for which no further
performance is required. In addition to royalties on net sales, the terms of the
agreement include certain other payments based upon Genentech's achievement of
milestones, assuming all benchmarks are met, for potentially up to
$40.0 million.
In addition to the Herceptin-Registered Trademark- agreement described
above, the Company announced in May 2000 that it has entered into an additional
agreement with Genentech. This second collaboration provides Genentech with
broad access to ImmunoGen's maytansinoid TAP technology for use with Genentech's
other proprietary antibodies. This multi-year agreement provides Genentech with
a license to utilize ImmunoGen's maytansinoid TAP platform in its antibody
product research efforts and an option to
F-29
<PAGE>
IMMUNOGEN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
2. AGREEMENTS (CONTINUED)
obtain product licenses for a limited number of antigen targets over the
agreement's five-year term. Under this agreement, the Company received and
recorded as revenue a non-refundable technology access fee of $3.0 million in
May 2000. This agreement also provides for certain other payments based on
Genentech's achievement of milestones, assuming all benchmarks are met for
potentially up to $40.0 million per antigen target, and royalties on net sales
of resulting products. Genentech will be responsible for manufacturing, product
development and marketing of any products developed through this collaboration;
ImmunoGen will be reimbursed for any preclinical materials that it makes under
the agreement. The agreement can be renewed for one subsequent three- year
period, for an additional technology access fee.
Also in May, 2000, the Company entered into a development, commercialization
and license agreement with British Biotech plc ("British Biotech"), a
biotechnology company located in Oxford, England, to develop and commercialize
the Company's huN901-DM1 TAP for the treatment of small-cell lung cancer. The
agreement grants British Biotech exclusive rights to develop and commercialize
huN901-DM1 in the European Union and Japan. The Company retains the rights to
commercialize huN901-DM1 in the United States and the rest of the world, as well
as the right to manufacture the product worldwide. Under the terms of the
agreement, British Biotech will be responsible for conducting the clinical
trials necessary to achieve marketing approval in the United States, European
Union and Japan. ImmunoGen is responsible for the remaining preclinical
development, and will be reimbursed for manufacturing the product for clinical
trials. British Biotech paid a fee of $1.5 million for its territorial rights to
huN901-DM1, which has been deferred, to be recorded as revenue as the Company
completes its preclinical development obligations. Upon approval of the product
for marketing in the United States, the Company will pay to British Biotech a
one-time milestone payment of $3.0 million. ImmunoGen will receive royalties on
sales of huN901-DM1 in the European Union and Japan.
In September 2000, the Company entered into a collaboration agreement with
Abgenix. The agreement provides Abgenix with access to the Company's
maytansinoid TAP technology for use with Abgenix's antibodies along with options
to obtain product licenses for antigen targets. The Company expects to receive a
total of $5.0 million in technology access fee payments, of which it received
$3.0 million in October 2000, as well as potential milestone payments and
royalties on net sales of any resulting products. The $3.0 million initial
access fee has been recorded as deferred revenue and will be recognized over the
period of the collaboration agreement. In addition, on September 7, 2000 Abgenix
purchased $15.0 million of the Company's common stock in accordance with the
agreement. Abgenix has the right to extend its options for a specified period of
time for an extension fee. Our agreement with Abgenix will terminate once the
specified time period during which the Company has given Abgenix access to its
technology ends. Either party can terminate the agreement for any material
breach by the other party that remains uncured for a certain period of time.
In September 2000, the Company entered into a collaboration agreement with
MorphoSys of Martinsried, Germany. Pursuant to this agreement, MorphoSys will
identify fully human antibodies against a specific cell surface marker that the
Company has identified through its apoptosis research and is associated with a
number of forms of cancer. The Company intends to develop products using
antibodies generated by MorphoSys against this marker. The Company paid
MorphoSys a $825,000 technology access payment and will pay development-related
milestone payments and royalties on net
F-30
<PAGE>
IMMUNOGEN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
2. AGREEMENTS (CONTINUED)
sales of any resulting products. The Company can terminate this agreement
unilaterally at any time and either party can terminate the agreement for any
material breach by the other party that remains uncured for a certain period of
time.
3. MINORITY INTEREST
In July 1997, ATI entered into a collaboration agreement with BioChem
Pharma Inc. ("BioChem"), a large Canadian biopharmaceutical company. This
agreement grants BioChem an exclusive worldwide license to ATI's proprietary
screens based on two families of proteins involved in apoptosis, for use in
identifying leads for anti-cancer drug development. As of April 2000, BioChem
has fulfilled all of its funding obligations under the agreement by purchasing a
total of $11.125 million in non-voting, non-dividend-bearing convertible
preferred stock of ATI.
In April 2000, BioChem informed ATI of its decision not to extend the
agreement beyond its scheduled July 31, 2000 termination date. Consequently,
under the terms of the agreement, rights to all screens delivered to BioChem
will revert to ATI effective August 1, 2000. However, certain provisions
pertaining to the license of any products resulting from the collation will
remain in force. As of August 1, 2000, no compound leads were identified. Until
July 31, 2000, all remaining proceeds of the $11.125 million BioChem investment
in ATI were restricted to support the research and development activities of the
collaboration. After that date, all residual proceeds will represent
unrestricted assets of ATI.
The preferred stock issued to BioChem is convertible into ATI common stock
at any time after three years from the date of first issuance, at a conversion
price equal to the then current market price of the ATI common stock, but in any
event at a price that will result in BioChem acquiring at least 15% of the then
outstanding ATI common stock. Through September 30, 2000, 11,125 shares of ATI
preferred stock were issued to BioChem, representing a 15% minority interest (on
an if-converted and fully-diluted basis) in the net equity of ATI. This minority
interest portion of ATI's loss reduced ImmunoGen's net loss in the three-month
period ended September 30, 1999 by $25,290. Based upon an independent appraisal,
approximately 3% of the $11.125 million invested to date, or approximately
$334,000, has been allocated to the minority interest in ATI, with the
remainder, or approximately $10.791 million allocated to the Company's equity.
As part of the BioChem agreement, BioChem also received warrants to purchase
shares of ImmunoGen Common Stock equal to the amount invested in ATI during the
three-year research term. Beginning July 31, 2000, these warrants are
exercisable for a number of shares of ImmunoGen Common Stock determined by
dividing $11.125 million, the amount of BioChem's investment in ATI, by the
market price of ImmunoGen Common Stock on the exercise date, subject to certain
limitations imposed by the Nasdaq Stock Market rules, which limit the sale or
issuance by an issuer of certain securities at a price less than the greater of
book or market value. Consequently, BioChem's ability to convert all of its
ImmunoGen warrants into ImmunoGen Common Stock is limited to a total of 20% of
the number of shares of ImmunoGen's Common Stock outstanding on the date of the
initial transaction to the extent that the conversion price would be less than
the market price of ImmunoGen Common Stock on that date, unless stockholder
approval for such conversion is obtained, if required, or unless the Company has
obtained a waiver of that requirement. The exercise price is payable in cash or
shares of ATI's preferred stock, at BioChem's option. The warrants are expected
to be exercised
F-31
<PAGE>
IMMUNOGEN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
3. MINORITY INTEREST (CONTINUED)
only in the event that the shares of ATI common stock do not become publicly
traded. ImmunoGen expects that BioChem will use its shares of ATI preferred
stock, in lieu of cash, to exercise the warrants.
4. CAPITAL STOCK
In July 2000, a holder of warrants originally issued in connection with a
private placement of the Company's Series A Convertible Preferred Stock
exercised his right to acquire 50,000 shares of Common Stock at $3.11 per share.
Proceeds from this warrant exercise will be used to fund current operations.
In September 2000, a holder of warrants originally issued in connection with
a private placement of the Company's Series A Convertible Preferred Stock
exercised his right to acquire 50,000 shares of Common Stock at $3.11 per share.
Proceeds from this warrant exercise will be used to fund current operations.
In September 2000, holders of warrants originally issued in connection with
a private placement of the Company's Series B Convertible Preferred Stock
exercised their rights to acquire 176,569 shares of Common Stock at $5.49 per
share. Proceeds from this warrant exercise will be used to fund current
operations.
In September 2000, holders of warrants originally issued in connection with
a private placement of the Company's Series D Convertible Preferred Stock
exercised their rights to acquire 27,273 shares of Common Stock at $1.94 per
share. Proceeds from this warrant exercise will be used to fund current
operations.
During the three-month period ended September 30, 2000, holders of options
issued through the Company's 1986 Incentive Stock Option Plan, as amended,
exercised their rights to acquire an aggregate of 214,101 shares at prices
ranging from $0.84 per share to $14.75 per share. The total proceeds from these
option exercises, $508,158, will be used to fund current operations.
F-32
<PAGE>
---------------------------------------------------------
---------------------------------------------------------
4,000,000 Shares
[LOGO]
Common Stock
------------------
PROSPECTUS
------------------
SG COWEN
ROBERTSON STEPHENS
ADAMS, HARKNESS & HILL, INC.
, 2000
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following expenses incurred in connection with the sale of the
securities being registered will be borne by the Registrant. Other than the SEC
registration fee, the amounts stated are estimates.
<TABLE>
<S> <C>
SEC Registration Fee........................................ 34,080
NASD Filing Fee............................................. 13,308
Nasdaq Listing Fee.......................................... 17,500
Legal Fees and Expenses..................................... 100,000
Accounting Fees and Expenses................................ 60,000
Printing and Engraving Expenses............................. 50,000
Miscellaneous............................................... 5,112
--------
TOTAL....................................................... 280,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article 6(d) of the Registrant's Restated Articles of Organization provides
as follows:
"(d) The liability of the Directors of the Corporation shall be limited to
the fullest extent permitted by Section 13(b)(1 1/2) of the Massachusetts
Business Corporation Law."
Section 6.6 of the Registrant's By-Laws provides as follows:
"Section 6.6 Indemnification of Officers, Directors, and Members of the
Scientific Advisory Board. The corporation shall indemnify and hold harmless
each person, now or hereafter an officer or Director of the corporation, or a
member of the Scientific Advisory Board, from and against any and all claims and
liabilities to which he may be or become subject by reason of his being or
having been an officer, Director of member of the Scientific Advisory Board of
the corporation or by reason of his alleged acts or omissions as an officer,
Director or member of the Scientific Advisory Board of the corporation, and
shall indemnify and reimburse each such officer, Director and member of the
Scientific Advisory Board against and for any and all legal and other expenses
reasonably incurred by him in connection with any such claims and liabilities,
actual or threatened, whether or not at or prior to the time which so
indemnified, held harmless and reimbursed he has ceased to be an officer,
Director or member of the Scientific Advisory Board of the corporation, except
with respect to any matter as to which such officer, Director or member of the
Scientific Advisory Board of the corporation shall have been adjudicated in any
proceeding not to have acted in good faith in the reasonable belief that his
action was in the best interest of the corporation; provided, however, that
prior to such final adjudication the corporation may compromise and settle any
such claims and liabilities and pay such expenses, if such settlement or payment
or both appears, in the judgment of a majority of those members of the Board of
Directors who are not involved in such matters, to be for the best interest of
the corporation as evidenced by a resolution to that effect adopted after
receipt by the corporation of a written opinion of counsel for the corporation,
that, based on the facts available to such counsel, such officer, Director or
member of the Scientific Advisory Board of the corporation has not been guilty
of acting in a manner that would prohibit indemnification.
Such indemnification may include payment by the corporation of expenses
incurred in defending a civil or criminal action proceeding in advance of the
final disposition of such action or proceeding, upon receipt of an undertaking
by the person indemnified to repay such payment if he shall be adjudicated not
to be entitled to indemnification under this section.
II-1
<PAGE>
The corporation shall similarly indemnify and hold harmless persons who
serve at its express written request as directors or officers of another
organization in which the corporation owns shares or of which it is a creditor.
The right of indemnification herein provided shall be in addition to and not
exclusive of any other rights to which any officer, Director or member of the
Scientific Advisory Board of the corporation, or any such persons who serve at
its request as aforesaid, may otherwise be lawfully entitled. As used in this
Section, the terms "officer," "Director," and "member of the Scientific Advisory
Board" include their respective heirs, executors, and administrators.
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------------------- -----------
<C> <S>
1.1* Form of Underwriting Agreement
3.1* Article 4 of the Restated Articles of Organization of the
Registrant (previously filed as Exhibit No. 3.1 to the
Registrant's Registration Statement on Form S-1, File No.
33-38883, and incorporated herein by reference)
3.2* By-Laws, as amended, of the Registrant (previously filed as
Exhibit 3.2 to the Registrant's annual report on Form 10-K
for the fiscal year ended June 30, 1990, and incorporated
herein by reference)
4.1* Form of Common Stock Certificate (previously filed as
Exhibit No. 4.2 to the Registrant's Registration Statement
on Form S-1, File No. 33-31219, and incorporated herein by
reference)
5.1 Opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo,
P.C., with respect to the legality of the securities being
registered
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo,
P.C. (included in Exhibit 5.1)
24.1 Power of Attorney (included on signature page)
</TABLE>
------------------------
* Previously filed.
** To be filed by amendment.
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
1934 Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to section 15(d) of the 1934 Act) that is incorporated by
reference in the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(b) The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or
II-2
<PAGE>
given, the latest quarterly report that is specifically incorporated by
reference in the prospectus to provide such interim financial information.
(c) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
For purposes of determining any liability under the Securities Act of 1933,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b) (1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, as amended, the
Registrant has duly caused this Amendment No. 2 to the Form S-3 Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Cambridge, Massachusetts on November 15, 2000.
<TABLE>
<S> <C> <C>
IMMUNOGEN, INC.
By: /s/ MITCHEL SAYARE
-----------------------------------------
Mitchel Sayare, CHAIRMAN OF THE
BOARD, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act, as amended, this
Amendment No. 2 to the Form S-3 Registration Statement has been signed below by
the following persons in the capacities held on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
Chairman of the Board of Directors,
/s/ MITCHEL SAYARE President and Chief Executive
--------------------------------- Officer (principal executive November 15, 2000
Mitchel Sayare officer and interim principal
financial officer)
* Executive Vice President, Science
--------------------------------- and Technology, Treasurer and November 15, 2000
Walter A. Blattler Director
/s/ JAMES T. PHAYRE
--------------------------------- Controller (principal accounting November 15, 2000
James T. Phayre officer)
--------------------------------- Director
David W. Carter
*
--------------------------------- Director November 15, 2000
Michael R. Eisenson
*
--------------------------------- Director November 15, 2000
Stuart F. Feiner
*
--------------------------------- Director November 15, 2000
Mark S. Skaletsky
</TABLE>
* By executing his name hereto on November 15, 2000, Mitchel Sayare is signing
this document on behalf of the persons indicated above pursuant to powers of
attorney duly executed by such persons and filed with the Securities and
Exchange Commission.
<TABLE>
<S> <C>
/s/ MITCHEL SAYARE
------------------------------
Mitchel Sayare
By: Attorney-in-fact
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------------------- -----------
<C> <S>
1.1* Form of Underwriting Agreement
3.1* Article 4 of the Restated Articles of Organization of the
Registrant (previously filed as Exhibit No. 3.1 to the
Registrant's Registration Statement on Form S-1, File No.
33-38883, and incorporated herein by reference)
3.2* By-Laws, as amended, of the Registrant (previously filed as
Exhibit 3.2 to the Registrant's annual report on Form 10-K
for the fiscal year ended June 30, 1990, and incorporated
herein by reference)
4.1* Form of Common Stock Certificate (previously filed as
Exhibit No. 4.2 to the Registrant's Registration Statement
on Form S-1, File No. 33-31219, and incorporated herein by
reference)
5.1 Opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo,
P.C., with respect to the legality of the securities being
registered
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo,
P.C. (included in Exhibit 5.1)
24.1 Power of Attorney (included on signature page)
</TABLE>
------------------------
* Previously filed.
** To be filed by amendment.
